Interest is a legal counter-value that compensates for the loss of value a monetary claim suffers over time and for the creditor being deprived of the use of their money. In practice, one of the most frequently confused distinctions is that between simple interest, statutory interest and default interest. Determining the correct type and rate of interest directly affects the amount that can be claimed, whether in enforcement proceedings or in a debt action. This article addresses, for information purposes, the legal foundations of the types of interest, the logic of the calculation and the points that require attention.
What Is Interest and What Is Its Legal Basis?
In Turkish law the basic regulation of interest is contained in Law No. 3095 on Statutory Interest and Default Interest. Alongside this, the Turkish Code of Obligations (in particular its provisions on default and interest) and, for commercial relationships, the Turkish Commercial Code are the principal sources determining the type and rate of interest. Interest may be agreed between the parties by contract, but it may also accrue by operation of law even where the contract contains no provision to that effect.
The general distinction is as follows: where the parties have set a rate, contractual (agreed) interest applies; where they have not, statutory interest comes into play. Where the debtor fails to pay the debt on time, that is, falls into default, default interest is applied.
The Difference Between Simple (Capital) Interest and Statutory Interest
Although these two concepts are frequently used interchangeably in everyday language, they perform different functions in law.
- Simple interest (capital interest): Interest that accrues in return for the use of money before the debt has yet become due and payable. For example, in a loan agreement, the interest agreed for the period up to the repayment date has the character of simple interest.
- Statutory interest: Interest applied at the rate prescribed by law in cases where the parties have not agreed an interest rate. Where there is no rate in the contract, statutory interest fills the gap.
- Default interest: Interest that begins to accrue after the debt becomes due, because of the debtor's delay in payment. Its purpose is to compensate for the loss arising from the delay.
A single claim may include both simple/statutory interest for the period before it became due and default interest for the period of delay. It is therefore critically important to determine correctly from which date and at which rate the interest will run.
How Are the Rates Determined?
Interest rates are not fixed; they are updated by the competent authorities in line with economic conditions. In practice there are two basic distinctions:
- In non-commercial matters: In relationships that are not of a commercial nature, where the parties are not merchants, the statutory interest and default interest rate is determined within the framework of Law No. 3095.
- In commercial matters: In commercial matters where both parties are merchants, the advance (rediscount) interest rate announced by the Central Bank may be applied as regards default interest. In commercial matters, default interest is generally higher than in non-commercial matters.
What matters is correctly determining whether the legal relationship from which the claim arises is non-commercial or commercial. An incorrect classification leads to the interest amount claimed being either understated or overstated.
How Is Interest Calculated?
The basic interest calculation rests on three variables: the principal, the applicable interest rate and the period over which the interest runs. In simple interest, the formula works according to the following logic:
Interest amount = Principal × Annual rate × (Number of days / 365)
The critical points here are as follows:
- Start date: Default interest runs from the date on which the debtor fell into default. This date is most often the date of notice, the due date, or the date of the action/enforcement proceedings.
- Rate changes: Where the interest rate has changed over the period during which it runs, the rate applicable to each period is applied separately and the results are added together. Applying a single current rate to the entire period gives an incorrect result.
- Prohibition of compound interest: As a rule, charging further interest on accrued interest (compound interest) is limited; strict rules apply on this point, especially in non-commercial matters.
The tool on this page produces an approximate result based on the principal, rate and date range you enter. However, the exact amount may vary according to whether the matter is commercial or non-commercial, the rates in force for the relevant periods, and the start date of the interest.
A Short Example Scenario
Suppose you have a claim of 100,000 TL and the debtor did not pay on the due date. The debtor is deemed to have fallen into default as of the due date. Interest runs on this claim, for the period from that date until the day payment is made, at the default interest rate applicable to that period. If the rate has changed twice over the period, each period is calculated separately at its own rate and the amounts are added together. This method differs from applying a single average rate and is the legally correct approach.
Common Mistakes in Interest Calculation
- Wrong start date: Whether interest is to run from the date of the contract, the due date, the notice, or the date of the action is frequently confused. An incorrect date may lead to the claim being rejected or to under-collection.
- Overlooking the non-commercial/commercial distinction: Applying the non-commercial interest rate to a commercial claim may cause the creditor to suffer a significant loss of rights.
- Ignoring rate changes: In long-term claims, failing to apply separately the rates that changed over the period is among the most widespread mistakes.
- Confusing the types of interest: Confusing pre-maturity capital interest with default interest for the period of delay leads to an incorrect total amount.
- Forgetting to claim interest: If interest is not expressly claimed in the action or enforcement proceedings, it may not always be possible for the court to award interest of its own motion.
Points to Bear in Mind
Interest calculation requires a legal assessment as much as a technical one. The nature of the claim, the terms of the contract, the determination of the moment of default and the applicable provision of law are ultimately decisive. Automated tools provide a quick preliminary idea; however, particularly for high-value or long-running claims, an assessment by a lawyer before commencing an action or enforcement proceedings helps prevent potential losses of rights. This content is intended for general information only and does not constitute a definitive legal outcome or guarantee in relation to any specific case.