Question for calculating Default Interest

USA Discussion in 'Technical Queries' started by Shampton, Aug 9, 2017.

  1. Shampton

    Shampton

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    I have a client with a promissory note and I need to calculate what will be due.

    The note was for $16,000 dated 5/1/15.
    Interest at the annual rate of 10% per annum, compounded annually.
    After maturity or a default, interest shall accrue on the outstanding balance at the rate per annum of the stated interest rate plus 5% (the "Default Rate").

    The maturity date is 5/1/17

    I calculated $1600 interest for year one and $1760 for year two.
    What steps do I take next? I've done it a few ways with different results so I wanted to see how it should be done to see if it matched anything I've tried.

    Thank you in advance for your help.
     
    Shampton, Aug 9, 2017
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  2. Shampton

    Drmdcpa VIP Member

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    Not sure what you are asking.
     
    Drmdcpa, Aug 9, 2017
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  3. Shampton

    Shampton

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    Sorry, I wasn't clear in my message. I need to calculate the interest from the maturity date to present to add to the first two years. The note wasn't paid by the maturity date so I need to know how to calculate the amount due.
     
    Shampton, Aug 9, 2017
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  4. Shampton

    kirby VIP Member

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    So far you are correct. $1,600 interest year one and $1,760 year two.
    So at 5/1/17 the amount due was $19,360

    Based on what you wrote above, the 15% interest is on the unpaid balance at maturity.

    That means 15% interest on the $19,360 until full payment is made
    So if unpaid for a full year then it is $2,904 to be added to the $19,360

    Given it is $2,904 for a full year, you can divide by 12 to get a monthly interest amount (then multiply by unpaid months and add that to the $19,360) or go daily (some use 360 for ease)
     
    Last edited: Aug 10, 2017
    kirby, Aug 10, 2017
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  5. Shampton

    Shampton

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    Thank you. That was one of the calculations I did so thank you for verifying. I really appreciate your help.
     
    Shampton, Aug 10, 2017
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