Calculating Default Interest under Estonian Law
Default interest (viivis) is a penalty for the delay in performing a monetary obligation. In Estonia, this is governed by the Law of Obligations Act (VÕS). If the parties have not agreed upon a specific rate in their contract, the statutory interest rate applies under VÕS § 113 (1).
Statutory Interest Rate
The statutory default interest rate is equal to the interest rate applied by the European Central Bank to its most recent main refinancing operations, plus 8 percent per year. This rate is adjusted semi-annually on January 1st and July 1st. It is calculated on a daily basis on the outstanding principal amount.
How to Calculate Default Interest
The standard formula for calculation is: (Outstanding Amount × Interest Rate (%) × Number of Days in Delay) / 365 / 100.
- Outstanding Amount: The principal debt amount.
- Interest Rate: The rate agreed in the contract or the statutory rate.
- Days in Delay: The period starting from the day following the due date until the actual payment date.
Legal Limitations
It is crucial to note that under VÕS § 113 (7), default interest cannot be claimed if the debtor is not responsible for the delay. Furthermore, contractual interest rates must be reasonable. Under VÕS § 162, a court has the authority to reduce an unreasonably high penalty interest rate to a fair amount.
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