Default interest
What is default interest, and when does a lender start charging it?
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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
Default interest is an extra rate a facility agreement charges on an amount that is overdue, or in some agreements on the whole loan while an event of default continues. The uplift ranges from one percentage point in many syndicated agreements to several points in some business-banking terms; it runs from the missed payment or the start of the default and usually stops once the default is remedied. Courts in the UK, Australia and New Zealand can refuse to enforce, as a penalty, a rate out of all proportion to the lender's legitimate interest.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
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- Commitment fee
- Break cost
- Margin ratchet
- Line fee
- Establishment fee
- Risk-adjusted return on capital (RAROC)
- Risk-based pricing
- Credit margin
- Cost of funds
- Prepayment fee (early repayment fee)
- Sustainability-linked margin
- Interest rate floor (on a loan)
- Bank bill rate (BKBM / BBSY)
- All-in rate (all-in cost)
- Funds transfer pricing (FTP)
- Wallet share
- Utilisation fee
- Agency fee
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