Anyone who has ever been late with a payment may have already encountered late payment interest. If you have forgotten to pay an invoice, a loan repayment or your rent, the creditor can charge you not only the amount you owe but also interest. How is interest calculated and how much can late payment cost you?
Late payment interest is a penalty that a creditor can claim in the event of late payment. The purpose of this interest is to encourage debtors to meet their obligations on time and to compensate creditors for the damage caused by late payment. Once the due date has passed, the creditor can start charging interest on late payment automatically without having to give the debtor special notice.
Default interest is most often applied to unpaid invoices, late loan payments, unpaid rent or payments owed to the state, such as taxes. Although the law provides for statutory interest on late payment, in some cases contractual interest on late payment may be agreed in the contract, which is usually higher. If the debtor fails to pay even after being reminded, other penalties may follow in addition to interest, including legal enforcement or entry in the debtors’ register.
The basic types of interest are therefore:
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Delaying your tax payments can cost you dearly. The tax office charges interest on late payments, which can add up quickly. How high is this interest, when does it start to accrue and is there any way to reduce or avoid it altogether? This is the subject of our next article.
If you are late with your payment, you may be charged statutory late payment interest. This interest serves to compensate the creditor for late payment and also encourages debtors to meet their payment deadlines.
The amount of statutory interest on late payment is based on the repo rate set by the Czech National Bank (CNB) on the first day of the calendar half-year in which the default occurred, plus 8 percentage points. For the first half of 2025, the CNB repo rate was set at 4% on 1 January 2025. This means that the statutory default interest for this period is 12% per annum (4% + 8%).
Imagine that you had to pay an invoice of CZK 50,000 due on 15 January 2025, but you did not make the payment until 15 February 2025, 31 days later. The calculation of interest on late payment would be as follows:
In this case, the default interest would be approximately CZK 510.
The CNB repo rate may change during the year. However, the rate applicable on the first day of the half-year in which the default occurred is used to calculate the default interest.
Please note that if you have negotiated your own interest rate in the contract, this contractual rate applies.
Late payment interest is not just an abstract legal concept, but can apply to anyone who is late with a payment. When exactly are you at risk?
One of the most common cases is a late payment on a loan or credit. Banks and non-banking companies have clear repayment schedules and once you are late, it is interest on late payments that can start to accrue in addition to the fine.
A similar situation arises with rent or utility payments. If you do not pay your rent or electricity, gas or water bills on time, the landlord or utility supplier may demand not only the amount owed but also interest for late payment.
Businesses and tradespeople should keep an eye on when invoices are due. If you do not pay an invoice on time, the creditor may charge statutory interest on late payment. This problem also affects businesses that wait for their money – the longer a client delays payment, the more expensive the bill becomes.
Finally, we must not forget debts to the state. The tax office, health insurance or the social security administration can apply interest on late payments, which can quickly add up to considerable sums. It therefore pays to keep your repayments under control.
Have you negotiated a security deposit with the tenant when renting the apartment? You should correctly return it with interest. And if you have not explicitly agreed on the amount, you can count on the interest usually demanded by banks in the borrower’s location. With the current rise in interest rates, it pays to keep an eye on everything, as the amounts involved may be far from negligible. You can read more in our article.
If you find yourself in a situation where you have to pay interest on late payments, you’ll want to know how to calculate it easily. The fastest and most convenient way is to use an online default interest calculator, which you can find on the internet. Simply enter a few basic details – the specific amount you owe, the number of days you are late with your payment and the calculator will calculate the extra amount you will have to pay in no time.
Late payment interest can add unpleasantly to your debt, but there are ways to avoid it. The key is to keep a close check on your payment obligations and to react in good time if you are in financial difficulty.
The first step is to set up reminders and automatic payments. Most banks today allow you to set up standing orders or direct debits, so you don’t have to worry about forgetting to pay. If you pay your bills manually, you can set up a reminder on your calendar or mobile app to remind you when they’re due.
If you run into financial trouble and are at risk of late payment, the best strategy is to contact your creditor early. Many banks, landlords or energy suppliers are willing to agree to defer a payment or spread the debt over a payment plan. The sooner you address the situation, the better your chances of being accommodated.
It is also important to read the terms and conditions of loans, leases or other commitments carefully. Some contracts contain not only interest on late payments but also high penalties or hidden fees. If you understand the terms well, you can avoid unpleasant surprises and unnecessary costs.
Default interest can be annoying, but it is easy to calculate and, more importantly, it can be prevented. Keep an eye on the current CNB repo rate and keep track of your liabilities to avoid unnecessary penalties. And if you’re not sure whether the interest you’re being charged is justified, you can always consult a professional.
Our team of experienced attorneys will help you solve any legal issue. Within 24 hours we’ll evaluate your situation and suggest a step-by-step solution, including all costs. The price for this proposal is only CZK 690, and this is refunded to you when you order service from us.
Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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