Interest on arrears is the interest that can be charged to a debtor if the debtor has not paid one or more of its balances with a creditor. In other words, default interest is typically charged on unpaid invoices, but can in principle also be charged on other debts.
Default interest can be seen as a compensation for non-payment, and thus the potential loss of interest that the creditor suffers by not having the money in his account.
Other concepts that serve as compensation for non-payment are also procedural interest or penalty interest.
The law on interest on late payment is regulated in the Executive Order of the Act on interest and other matters relating to late payment - or in common parlance: the Interest Act.
The original Interest Act dates back to 1977 and is updated periodically. The current and applicable Interest Act is from 2014. We recommend that you always refer to the current and thus the applicable Interest Act on retsinformation.dk when you want to find further information on the text of the law.
For most creditors, section 5 of the Interest Act, which deals with the calculation of interest, is of particular interest.
Interest law? Interest on late payments? This can be a difficult topic for most people, so we've put together 4 basic things you should know about interest on late payments.
We are often asked how to calculate interest on arrears, which is actually not that difficult. Because section 5 of the Interest Act specifies this quite clearly.
The default interest rate is calculated on the basis of a statutory fixed interest rate of 8% (in 2023) and a reference rate, which is the National Bank's lending rate. If the National Bank's current lending rate is, for example, 0.5%, the 8% stipulated in the Interest Act is simply added. All other things being equal, this must mean that default interest of 8.5% must be charged
We recommend that you always refer to the current interest rates in the Interest Act and on the website of the National Bank of Denmark.