Reading the interest clauses in a loan agreement

2 min read

Rate basisReducing, flat or factor

Change & defaultWhen the rate moves

Exit termsEarly-repayment cost

How the rate is calculated

Check whether the rate is reducing-balance, flat or a factor, and how often it compounds. Check the day-count basis (365 vs 360) on larger facilities. These decide the true cost behind the headline.

When and how the rate can change

On a variable rate, find the reference rate, the margin, any floor and how often it resets. On a fixed rate, find the fixed period and the reversion rate afterwards.

Default interest and fees

Look for default interest if you fall behind, the arrangement fee and whether it is deducted from the advance, plus any non-utilisation or admin fees. Each adds to the total cost of credit.

Exit and early-repayment terms

Check for an early-repayment charge, whether overpayments are allowed free, and whether the Rule of 78 applies to any rebate. These decide the cost of leaving early.

Where Credicorp fits

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See indicative terms on business loans, or apply online in minutes.

See how to compare two loan offers on cost and total amount payable.

Frequently asked questions

What is the single most important clause?

How the rate is calculated and the total amount payable. Everything else — changes, default, exit — flows from understanding the real cost of the money.

Should I worry about default interest if I always pay on time?

Know it is there. Circumstances change, and a punitive default rate can turn a temporary wobble into a serious problem. It is part of judging the deal.

Can I negotiate these clauses?

Sometimes — particularly the margin, fees and early-repayment terms. It is easier before you sign than after. Ask.