Default Interest Accrual Calculator

Default interest accrues cumulatively during workout or distress periods.

Loan balance

Base rate %

Default spread (bps)

Accrual months

Compound monthly (1=yes)

Total accrued default interest

$1,590,740

Compounding effect

$90,740

Effective annual rate

0.10%

How the math works

Simple = balance × rate × (months/12). Compound = balance × ((1 + rate/12)^months − 1).

$12M at 10% × 15 months simple = $1.5M. Compound monthly = $1.57M. Effect $70k from compounding.

How to Use

Enter loan balance.
Enter base interest rate %.
Enter default rate spread bps.
Enter accrual months.
Enter capitalization trigger.
Read accrued default interest.

Frequently Asked Questions

What is default interest?

Additional interest rate (typically 400-500 bps over contract rate) that accrues on defaulted or technical-default loans. Purpose: compensate lender for credit risk realized. Default interest may (1) accrue from technical default date, (2) compound monthly or quarterly, (3) capitalize into principal balance at lender's option, (4) be deferred to payoff date, (5) be reduced in workout agreement as concession.

When does it start?

Technical default: any covenant breach (DSCR, delinquency, reporting). Interest accrual typically begins at default declaration (lender letter) not at underlying event. Payment default (loan delinquency): most loans start default interest day 30 of delinquency. Full default: at acceleration. Some loans have 'soft default' clauses — accrues but doesn't compound. Read loan docs carefully for specific triggers.

Capitalization rules?

Compounding: monthly or quarterly typical. Each compound period, accrued default interest is added to principal balance — future interest accrues on enlarged balance. After 12-24 months, default interest can add 5-15% to loan balance. Capitalization in workout deals sometimes waived as lender concession. Aggressive capitalization is a lender lever against uncooperative borrowers — incentive to negotiate.

Negotiating reduction?

In workout agreements, default interest is often: (1) accrued but waived upon cure, (2) reduced by 50-75%, (3) deferred to maturity, (4) paid but with credit for future modification. Lender concedes default interest as good-faith element of workout package. Typically only happens with specific sponsor contribution (cash infusion, guarantor signing). Don't assume it'll be waived — negotiate specifically.