Default interest
Draft definition. Technical and editorial approval pending.
An increased interest rate that applies after specified default events, typically expressed as a margin above the normal rate. It compensates the provider for elevated risk and creates pressure to cure quickly. The triggering events, the increment and whether it applies to all outstandings or only overdue amounts are contractual and vary between facilities.
In practice
A fictional facility charges an additional 2 percent on drawn debt during a default period. On 7.2m USD drawn, that adds roughly 144,000 USD annually, or about 12,000 USD monthly, on top of existing interest. Understand the trigger and the cure window before you agree the increment.
Read this in context: Facility Fees and All-in Cost.