Interest on interest, or is it possible to use anatocism?

Interest is an accessory (side) benefit to the main benefit. They are calculated according to the interest rate and time. The purpose of adding them is remuneration for the possibility of using someone else's money or other form of capital over a certain period of time. They also act as a compensation for delay in default within the prescribed period. They are also aimed at valorization of capital, i.e. compensation for the decline in the purchasing power of money. Is interest interest possible? Check when it is possible to use anatocism in economic law.

When is interest due?

Interest may be added if:

• it is stipulated in an agreement concluded between the parties (e.g. an agreement specifying the amount of interest - but not exceeding the maximum statutory interest)
• a situation specified in the act has arisen (e.g. the debtor's delay)
• the court issued a ruling (or an administrative authority - decision) on the interest

What is the interest payment term?

As a rule, interest is payable annually in arrears (unless otherwise agreed in the contract). If the payment term is shorter than one year, the interest should be paid when the principal is paid. Interest for delay becomes payable upon the ineffective expiry of the payment (performance) deadline. Interest can be indexed, but is it possible to charge interest on interest?

Interest on interest - is it possible?

In accordance with applicable law, it is forbidden to charge interest on interest. However, as is often the case, and in this case, the legislator provided for certain exceptions, namely in Art. 482 § 1 of the Civil Code, the institution of anatocism was allowed if the claim for interest on overdue interest was included in the lawsuit covering the aforementioned overdue interest, and if, after the arrears arose, the parties agreed to add the overdue interest to the sum of the debt. Also, when the demand concerns interest on long-term loans granted by banks or other credit institutions, such a possibility is possible pursuant to Art. 482 § 2 of the Civil Code. In other words, it is possible in a situation where a party adds to the main debt interest accrued on the day preceding the filing of the statement of claim and includes this interest in the value of the dispute. This case is called the capitalization of interest. At the same time, it should be borne in mind that the claim for further interest is possible only from the date of filing the statement of claim. In the case of interest resulting from an agreement concluded between the debtor and the creditor, it is presumed that the debtor recognizes the debt plus interest and has agreed to add the overdue interest to the principal amount.