Editing Interest (section)

===Default interest===
Default interest is the rate of interest that a borrower must pay after material breach of a loan covenant.

The default interest is usually much higher than the original interest rate since it is reflecting the aggravation in the financial risk of the borrower. Default interest compensates the lender for the added risk.

From the borrower's perspective, this means failure to make their regular payment for one or two payment periods or failure to pay taxes or insurance premiums for the loan collateral will lead to substantially higher interest for the entire remaining term of the loan.

Banks tend to add default interest to the loan agreements in order to separate between different scenarios.

In some jurisdictions, default interest clauses are unenforceable as against public policy.