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The monthly fee is $300/month and the owner stopped paying. The first past due payment began in August 2014 (July's fees) so it is now 13 months. The interest rate is 12% per annum or 1% per month. Do I take $3,900 x 13% = $507.00? If I take just 1% of 300 for 13 months it seems to be low, i.e. $300 x 1% x 13 = $39.
Another way of doing it, I think, is the following:
JUL 2014 - $300x13 months outstanding x 13% = $507
AUG 2014 - $300x12 months outstanding x 12% = $432
SEP 2014 - $300x11 months outstanding x 11% = $363
Not sure which, if any, is correct.
Thanks for your help!
Ned, thanks for your reply.
If I do it your way, it appears to me that almost nobody would pay on time since the interest on past due balance would be too small. So again, after lengthy research online, I still could not find how it should be correctly calculated. The search continues...
But if you do it the way you are proposing, you are double charging them.
We charge a flat $25 per month. It makes it much easier to administrate - and collect. We also use it as leverage to collect, i.e. "if we receive your arrears by X, we will waive the late fees". It seems to work except for those 1 or 2 that simply cannot pay due to financial circumstances. In my opinion, you are long past the letter stage other than 1 final letter to advise them that you will be pursuing legal action if the arrears are not paid by "X".
I think simple interest is exactly that, straight interest.
1% on $300 July 2014 unpaid maint) is $3 for each of 12 months ($36) if it were paid on Aug 1, 2015. Unpaid Aug 2014 would be $3 month for 11 months $33) if paid on Aug 1, 2015. Unpaid Sep 2014 would be $3 for 10 months $30) if paid on Aug 1, 2015, etc. Add it up, total $234. if the $3600 were paid Aug 2015.
Compound interest would add the interest to each balance, so after the first month, $303 would be due, then 606.03, then 912.09, then 1212.18, etc. It would come out to another $2-$3 dollars.
A flat late fee could be considered punitive, and unless you can show a cost to you for processing the late payment different than an on-time payment, it might get thrown out in a court. A % charge could be justified by lost interest or the cost to borrow money to pay coop bills if the mmaintenance wasn't received timely. Just my opinion..
Flat fees are acceptable; you have to ensure it is reasonable
For example, if you're paying $750 per month and the late fee is $75, that's a 10 percent fee. Although that high percentage may be legal in some states, it's higher than the standard 3 to 5 percent.
JG, I think you are correct on the calculation of interest. It does make sense although the interest is very low. Thank you.
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It would be on a scale so if you are sending them a letter and starting with most recent, I would indicate the month in arrears/amount interest charged and total:
August 2015 $300 + $3.00 = $303.00
July 2015 $300 + $6.00 = $306.00
June 2015 $300 + $9.00 = $309.00
etc. up to 1st month of arrears, August 2014
August 2014 $300 + $39.00 = $339.00
and with a note indicating "Arrears interest calculated at 12% per annum or 1% per arrears month".
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