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The following HIA contracts QC1, QC2 and QC3 entitle the builder to charge default interest on late payments. The default interest rate in these contracts is 18% per annum, unless agreed otherwise between the parties to the contract.
Interest owing can be calculated using this simple formula:
Interest payable = Debt outstanding x interest rate x time overdue
Bob the Builder has an HIA QC1 2010 New Home Construction Contract with Jenny the Owner. Bob submitted a progress claim at the completion of the Enclosed Stage for $40,000 on the 12 March 2013.
The contract requires Jenny to pay the progress payment within five working days. Jenny pays the claim on 28 March 2013, which is 10 days late. Bob decides to charge Jenny default interest given she has been late with payment of all claims to date.
Bob checks Item 14 Schedule 1 of the contract and notes that no amount has been stated, meaning the default rate is 18% per annum.
Bob would calculate the default interest using the following formula:
Interest = Debt outstanding x interest rate x time overdue
= $40,000 x (18%/ 365 days) x 10 days
= 40,000 x (0.18/365) x 10
Interest = $197.26
Note: remember leap years have 366 days.
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