Compound interest

The compound interest is the fact that, in the obligations relating to a Dette of money, the interests fallen of the capital are capitalizable. The outstanding interests being added to the initial debt, they themselves are thus subjected to the interests.

This term is resulting from the Greek ana (once again) and tokos (returned).

In the Civil code French, the compound interest is framed by article 1154 which lays out that: “ the outstanding interests of the capital can bear interest, or by a legal request, or a special convention, provided that, either in the request, or in convention, they are interests due at least for a year whole ”.

So that the compound interest is possible, it is necessary that three conditions are cumulatively met:

  • First condition : it must be a question of outstanding interests of capital.
the judge cannot grant the anatoscism for future interests. It is not either possible to be appropriate it beforehand. Such a convention would be illegal. The debtor thus must with each time there are outstanding interests, informed being that the compound interest will be applied.
the term “capital” should not be included/understood limitativement in the direction of lent capital. They are also sums which are due following a court order.
the compound interest can be applied to all kinds of interests: conventional moratoriums, legal, legal or capitalized interest.

  • Second condition : it must be a question of interests which are due for one year whole . For short-term credits, it is not possible to add each month the interest outstanding to the capital and to calculate the interest in addition. A capitalization for one period exceeding one year is completely possible.

  • Third condition : one needs a legal summation or a contractual clause express , which must be renewed annually at the limit. Nothing prevents from addressing a summation before the one year old flow.

Commercial matter

In commercial matters, the compound interest is not subjected to these conditions by the play of a habit countered legem. One can however note that today it is rather the quality of professional whom that of tradesman who allows the implementation of this system without the above mentioned conditions. The compound interest thus relates to the debtor office accounts.

See too

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