Cancellation of interest on loans and borrowings
Interest is the remuneration that a bank or loan company receives for providing us with financial support. They are calculated according to the interest rate indicated in the contract. Their maximum amount is regulated by the Consumer Credit Act. In special cases, we can ask the creditor to write off interest on the loan. We suggest how to do it!
Will we always pay for the loan?
From the borrower’s point of view, interest is something that increases the cost of its commitment. For a creditor, i.e. a bank or loan company, this is a remuneration for lending us money. The amount of interest depends, among others from:
- how much we borrow,
- loan period,
- type of commitment,
- interest rate.
The maximum amount of interest is regulated by the Consumer Credit Act. It was limited to twice the sum of the reference rate of the National Bank of Poland and 3.5 percentage points.
Capital interest and penalty interest
Like capital interest, penalty interest is limited. The interest rate may not be higher than that indicated in the relevant provisions of the Civil Code. Importantly, penalty interest is charged only in the event of late payment. Their task is to motivate the debtor to pay the liability. Unless the loan or credit agreement provides otherwise, the amount of penalty interest is regulated by art. 481 point 2 of the Civil Code. The Civil Code also specifies how much interest for delay can be stipulated in the contract. It is 14% per annum.
Amortization of loan interest – what is it about?
The debtor may apply for both the cancellation of capital interest and penalty interest charged for late repayment. Whether interest is written off depends on the good will of the creditor and whether he will give up his “remuneration”. If the creditor complies with the debtor’s request, he will waive the payment requirement.
If the debt has been transferred to a debt collection company, we should negotiate the write-off of interest with it. What we can apply for is the total write-off of interest, partial write-off of interest or suspension of it for a specified period.
How do you apply for interest and loan remission?
It is worth starting negotiations with the creditor by showing good will and showing that we intend to pay back the debt that has arisen. This is a much better solution than avoiding contact or incurring further debts to repay the previous one.The next step is to write an application for remission of interest . This document should include elements such as:
- debtor’s details,
- creditor’s details,
- what is the source of the liability (e.g. loan agreement),
- amount of debt,
- the amount of interest accrued as at the date of the document,
- reason for canceling interest – this is a very important point, because if the creditor is to give up his salary, then he must have clear reasons for it, e.g. the fact that we have lost our job or that our health has deteriorated,
- assurance of timely repayment of the debt,
- possible negotiation of the repayment terms (e.g. spreading the obligation over more installments).
To the application for remission of interest, we can attach documents confirming the deterioration of our material situation, temporary inability to work, etc. However, we should remember that even if we complete all formalities, the creditor is not obliged to comply with our request.
Cancellation of interest on loans and credits versus the tax office
When interest on loans and credits are written off, most tax offices recognize that the debtor does not generate income from free benefits. It looks a little different when the loan was interest-free from the beginning. Then the lack of interest results in the income from free benefits.Unfortunately, how to settle interest write-offs on loans and credits is not entirely clear. The provisions in force in this regard are not clear-cut, which is why it is worth asking the tax office to interpret them.
It is important whether the person to whom interest was written off conducts business activity.The cancellation of interest to a natural person who does not conduct business activity within the meaning of the tax authorities means that no free benefit will arise. You do not need to issue PIT-8C in this situation. The person whose interest has been canceled does not have to pay income tax.Also in relation to persons conducting business activity, courts and tax authorities usually take a position favorable to taxpayers. Interest is not recognized as income on forgiven liabilities. In the example discussed, the lender only generates income when he receives interest, and the debtor’s tax deductible costs are the interest he actually paid. However, it is worth knowing that “free loans” are treated differently.
According to the courts and tax authorities, the borrower generates income in the form of unpaid benefits. It is expressed in the amount of interest that the borrower would normally have had to pay on an interest-bearing loan.