How to calculate daily interest?

cr0fty

Hi folks.

This is my first post so be gentle.

I currently rent out a property and the tenant has failed to pay her rent. Now in the Tenancy Agreement it says she has to pay interest at 3% per day on any debts owed.

Is it as simple as £10 + 3% = £13 then £13 + 3% = £13.39 then £13.39 and so on or not.

Thanks folks,
Cr0fty
:beer:

Stompa

Assuming it's compound interest then yes. Though £10 + 3% = £10.30 not £13.

Just multiply by 1.03 every day.

cr0fty

Stompa wrote: »

Though £10 + 3% = £10.30 not £13.

Haha so it is.

What exactly is compound interest? The tenancy agreement is worded like so

"The landlord reserves the right to charge interest (calculated from day to day) at 3% over the Bank of England base rate on late payments and the landlord may recover the interest as though it were rent."

getmore4less

cr0fty wrote: »

Haha so it is.

What exactly is compound interest? The tenancy agreement is worded like so

"The landlord reserves the right to charge interest (calculated from day to day) at 3% over the Bank of England base rate on late payments and the landlord may recover the interest as though it were rent."

Thats 3.5% per year not day. (base rates are always flat yearly rates)

also clause need to be clear what the compounding is.

By default I would say that is yearly.

SnowMan

You cannot charge unreasonable interest on unpaid rent as it will breach unfair terms in consumer contracts legislation and guidance see here in particular para 3.46.

We regard a requirement to pay unreasonable interest on arrears of rent, at a rate substantially above the clearing banks' base rates, as an unfair penalty. We regard the imposition of a fixed daily or monthly charge for overdue rent, and regardless of the amount due or the surrounding circumstances, as being penal rather than compensatory in nature, and unfair. Tenants would have to pay more than the cost of making up the deficit caused by their default.

You should perhaps concentrate on contacting the tenant to find out why rent hasn't been paid on time rather than worry about relatively trivial issues such as interest.

cr0fty

It's a good job I'm asking then and not just billing her isn't it :j

cr0fty

SnowMan wrote: »

You should perhaps concentrate on contacting the tenants to find out why rent hasn't been paid on time

I have done this but she fails to communicate with me.

SnowMan wrote: »

rather than worry about relatively trivial issues such as interest

I'm sure if someone was in debt to you and you were being charged overdraft fee's by your bank because of this debt, then the issue of interest (as a means to re-recuperate the fee's) wouldn't be so trivial!

SnowMan

cr0fty wrote: »

I have done this but she fails to communicate with me.

I'm sure if someone was in debt to you and you were being charged overdraft fee's by your bank because of this debt, then the issue of interest (as a means to re-recuperate the fee's) wouldn't be so trivial!

One of the risks of being a landlord is that tenants will default on rent and I would have made sure I was in a financial position to deal with this.

If it is a genuine oversight by the tenant then charging the tenant interest is likely to annoy them and potentially lead to them handing in notice. You will then have a position where you won't have rent coming in while you find a new tenant.

If the tenant is in financial difficulties then your problem is going to be getting the rent paid at all, and then next month's rent.....

Hence why interest on the unpaid rent is not the issue.

Reaper

cr0fty wrote: »

Now in the Tenancy Agreement it says she has to pay interest at 3% per day on any debts owed.

Lol. If it really said that it would be loan shark rates. If the tenant owed you just £100 then after a year with compounding you would be owned £4.7 million pounds!!

Instead it is 3% over the year. The "daily compound" bit it in the contract means if they were to pay before the year was up they would still owe a bit of interest.

talexuser

The point being made is if the rent is say £500 a month, the interest would be less than 5p per day - more important to concentrate on the £500 than worry about the 5ps if sorted soon.

cr0fty

The thing is though that she actually has the money. She gets housing benefits and it has been confirmed to me by the benefits association that the payments to her have been made. She just isn't paying the money