What Are these interest rates remunerative? What's the difference between them and default interest? See the calculation!

Have you ever needed to better understand the charges of a loan or financing and come across the following? remunerative interestThese details can often seem complicated, but they are essential for anyone who wants to make more informed financial decisions.

In this article, we'll explain what interest rates are, how they differ from other types of interest, such as default interest, and how they can influence your relationship with debt and investments. Get ready for a clear and objective explanation that will help you make more informed financial decisions.

You will find in this text:

• What is remunerative interest?
• Differences between Remuneratory and Default Interest
• How to Calculate Remuneratory Interest

What is remunerative interest?

Interest is the charge levied for the use of borrowed capital, representing a form of remuneration to the creditor for the money made available.

They are levied on the principal amount of the loan or financing and are calculated based on the length of time the borrower uses the funds. This interest is not a penalty, but rather a natural compensation for the fact that the lender is temporarily lending the principal to the borrower.

Typical situations in which remunerative interest is applied include:

• Bank loans: When you take out a personal or business loan, interest is applied monthly to the amount borrowed until payment is complete.
• Financing: In financing vehicles, real estate or consumer goods, interest is added to the total financed amount, increasing the final amount that the buyer pays for the asset.
• credit card: If you do not pay the full amount of the invoice, interest will be charged on the outstanding balance, representing the cost of “using” the credit made available by the bank.

This interest is agreed upon in advance in the contract and reflects the lender's opportunity cost—the return they expect to receive from lending their capital, in addition to covering the risk of default. Thus, the greater the risk or the longer the repayment term, the higher the interest rate tends to be.

Differences between Remuneratory and Default Interest

Interest on arrears and interest on arrears have distinct purposes and apply in different contexts. While interest on arrears aims to compensate the lender for the use of the borrowed capital, functioning as a return on the amount made available, interest on arrears is applied as a penalty for late payment, aiming to compensate the lender for failure to meet the agreed deadline.

The main differences between the two types of interest include:

Purpose:

• • Remuneratory Interest: These serve as a counterpart for the use of capital. They are charged from the beginning of the loan or financing agreement, reflecting the cost the lender imposes for making the borrowed amount available.
  • Default Interest: Charged when the debtor fails to meet agreed-upon deadlines. This interest is intended to compensate the creditor for late payment, covering potential financial losses resulting from default.

Predictability:

• • Remuneratory Interest: These are foreseen from the beginning of the contract. The parties involved agree in advance on the interest rate that will be applied throughout the term of the financing or loan.
  • Default Interest: These are not agreed upon in advance, but arise as a consequence of late payment. They only come into play when the debtor fails to fulfill their obligations within the established deadlines.

Applied Rates:

• • Remuneratory Interest: Generally, they have more stable rates and are calculated based on the amount borrowed and the period of use of the capital. The rate may vary depending on market conditions and credit risk.
  • Default Interest: These tend to have a higher rate, as their objective is to punish defaulters and discourage late payments. They are calculated proportionally to the length of the delay.

Application Scenarios:

• • Remuneratory Interest: Applied in situations such as loan agreements, bank financing and credit operations, where there is a predetermined use of capital.
  • Default Interest: They are common in situations of default, such as non-payment of installments on a loan or late payment of service bills, such as electricity, water or telephone bills.

How to Calculate Remuneratory Interest

Calculating interest may seem complicated, but with a practical example, you'll see that the process is simple and essential to understanding how charges are applied in loan or financing agreements. This interest is charged on the principal amount, as compensation to the lender for using the capital. Let's see in practice how this works and also how it compares to default interest, which is applied in cases of delay.

Example of Calculation of Remuneratory Interest

Imagine you took out a R$10,000.00 loan with a monthly interest rate of R$21,000.00, and a 12-month repayment term. To calculate the monthly interest rate, use the basic formula:

INTEREST = CAPITAL x INTEREST RATE x TIME

In the first month, the calculation would be like this:

Interest = 10,000 \times 0.02 \times 1 = R$ 200.00

In other words, in the first month, you'll pay R$$ 200.00 in interest alone, plus the principal repayment installment. This R$$ 200.00 represents the lender's compensation for the borrowed capital. The total amount due at the end of 12 months will be greater than the initial R$10,000.00 due to the accrual of interest over time.

Complete Loan Simulation:

For the loan of R$ 10,000.00 with 2% of interest per month for 12 months:

• Main value: R$ 10,000.00
• Monthly interest: R$ 200.00
• Total paid in interest over 12 months: R$ 2,400.00
• Grand total paid: R$ 12,400.00

Example of Calculation of Default Interest

Now, imagine that, in the event of late payment, the contract provides for interest of R$11,000.00 per month on the amount due. Suppose your monthly installment is R$1,000.00 and you're one month late.

The calculation of default interest would be as follows:

Interest = 1,000 \times 0.01 \times 1 = R$ 10.00

Therefore, the additional amount you would pay for one month of delay would be R$ 10.00 in late payment interest, in addition to the installment amount.

Comparing Remuneratory and Default Interest in Practice

If you consider interest accrued throughout the term of the contract and interest accrued in the event of a delay, it's clear that the two serve different purposes. Interest accrued over time and can represent a significant portion of the total amount due. Interest accrued in arrears is a relatively small additional penalty, but it can increase over time if the delay is prolonged.

Summary of financial impacts:

• Interest remuneration in the example: R$ 2,400.00 over 12 months.
• Default interest for a delay of 1 month: R$ 10.00.

Legal Limits and Abusiveness of Remuneratory and Default Interest

Brazilian law imposes limits on both interest and default interest, aiming to protect consumers from abusive practices. The Consumer Protection Code (CDC) plays a central role in regulating these rates, ensuring that creditors do not impose excessive charges.

Limits on Remunerative Interest

Interest rates, as they are agreed upon in loan and financing contracts, do not have a strict legal ceiling, but the Consumer Protection Code (CDC) requires that rates be agreed upon clearly and transparently. Case law, however, establishes that rates cannot be abusive compared to market rates for similar transactions. If the interest rate applied is significantly higher than the market average, it may be considered abusive by the courts, based on the Article 51 of the CDC, which protects the consumer against excessively onerous clauses.

Relevant court decision: The Superior Court of Justice (STJ) has ruled on several occasions that interest rates above the market average can only be considered abusive when they are demonstrated to significantly exceed the standard practiced by other financial institutions for that type of transaction. In these situations, the consumer can request a judicial review of the contract.

Limits on Default Interest

Default interest, on the other hand, has a clearer legal ceiling. According to the Article 406 of the Civil Code, they cannot exceed 1% per month, unless otherwise provided for in specific contracts. Furthermore, the Consumer Protection Code imposes additional limits, prohibiting abusive clauses that impose disproportionate charges on the consumer in cases of late payment. Therefore, any fee exceeding this percentage, without legal or contractual justification, may be subject to judicial review.

Relevant court decision: The Superior Court of Justice (STJ) has already established that, even with a contractual provision, default interest cannot exceed 1% per month, except in specific, duly substantiated exceptions, such as contracts governed by special legislation (such as the Housing Finance System – SFH). When the rate exceeds this limit without a legal basis, it is considered abusive.

Consumer Protection and CDC Rules

THE CDC protects consumers from abuse by guaranteeing the right to review contractual clauses, including interest, when they prove excessively onerous or contrary to good faith. Consumers who feel harmed can seek legal redress for rates that are outside market or legal standards. Furthermore, Article 52 of the CDC requires that all financial charges be clearly disclosed to the consumer before contracting.