The new Hungarian regulation on late payment interest applicable during the period of state of danger

The Hungarian government has introduced a new regulation on the rate of late payment interest, which entered into force on 10th November, 2022.

The payment on default interest is regulated in the Hungarian Civil Code (Act). Pursuant to the rules applicable in the absence of the parties’ deviating agreement, the rate of the late payment interest, depending on the currency of the debt, shall be calculated as follows:

1. the base rate of the Central Bank of Hungary applicable on the first day of the calendar half year affected by the default increased by 8%;
2. if the debt is in foreign currency, the base rate set for the relevant currency by the issuing central bank increased by 8%;
3. if the bank issuing the foreign currency has no base interest rate, then the interest rate of the financial market increased by 8%.

It is very usual that the parties agree on a different default interest’s rate, eg. we often see stipulated the double of the base rate applied by the Central Bank of Hungary.

The obligor shall be required to pay default interest, even if the pecuniary debt was otherwise interest. When calculating the late payment interest, the central bank’s base rate applicable on the first day of the calendar half-year in which the first day of the delay falls shall be taken into account as a starting point, and thus, if the default lasts for a longer period, the rate of the late payment interest may change each calendar half-year, depending on the actual applicable central base rate.

Compared to the rules mentioned above, from 10th November the late payment interest rate is maximised at 25%. The government decree states that the late payment interest – irrespective of whether it was based on the law or the agreement of the parties – may only be 25% at maximum, and all the exceeding rate above the 25% should be seen as if the parties had not agreed upon it at all.

We would like to emphasize that this regulation has only a temporary effect, during the period of state of danger determined by the Hungarian parliament. Currently the end of the state of danger period shall be 1st of December 2022, if it will not be extended.

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This summary is intended to raise awareness and does not constitute legal advice.

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