Interest on a loan: when it is owed and what happens if it is excessive

It is Article 1328 of the Civil Code of 2020, inside the loan chapter: when interest is owed, how it is computed when what was lent is not money, how often it is paid, what a receipt presumes, and what becomes of a clause that overcharges a natural person.

Borrowers and lenders under a loan governed by the Puerto Rico Civil Code. The nullity rule of the last paragraph is written for natural persons.

• For interest to be owed: that it was agreed, or that the applicable statute, regulation, administrative order or usage provides it.Verified against the official source
• For the last paragraph’s nullity: that the clause oblige a natural person to pay interest greater than that provided by the statutes, regulations and administrative orders.Verified against the official source
• To compute interest on a loan of goods other than money: the price of those goods at the place and date payment is due, save agreement to the contrary.Verified against the official source

• The contract recording the rate or how it is calculated, because the article’s first rule starts with what was agreed.
• The interest receipts: the article gives them an effect of their own, the presumption that earlier periods were paid.
• The rule fixing the maximum applicable to your kind of loan and lender: the Code refers to it and does not reproduce it.

1. 1

   Step 1: Where the interest comes from

   First paragraph: in a money loan the borrower owes interest as agreed or in the amount provided by the statutes, regulations, administrative orders or usages. The Code does not carry the figure: it refers out.

2. 2

   Step 2: This article publishes no rate

   It is worth saying separately, because it is what people search for most: Article 1328 does not say how much interest may be charged. You must look at the statute, regulation or administrative order applicable to that kind of loan and lender. This guide publishes no percentage the source does not carry, and distrusts anyone who quotes one without naming the exact rule.

3. 3

   Step 3: If what was lent was not money

   Second paragraph: in a loan of other goods, interest is paid in money, and for the computation, save agreement to the contrary, the price of the goods lent at the place and date payment is due is taken into account.

4. 4

   Step 4: Interest paid on a gratuitous loan

   Third paragraph: where the loan is gratuitous, the borrower may not demand back the interest they voluntarily paid. What was voluntarily paid is not recovered by this route.

5. 5

   Step 5: After the breach, interest is owed

   Fourth paragraph, short and consequential: even if the loan is gratuitous, interest must be paid after the breach.

6. 6

   Step 6: How often they fall due

   Fifth paragraph: save different stipulation, interest is owed per month in arrears or with each total or partial payment.

7. 7

   Step 7: A clean receipt drags the earlier ones along

   Sixth paragraph: a receipt for interest for one period, without condition or reservation, gives rise to a presumption that the earlier ones were paid. That is why how receipts are worded matters, on both sides of the counter.

8. 8

   Step 8: The clause that overcharges is void

   Seventh paragraph: a contractual clause obliging a natural person to pay interest greater than that provided by the statutes, regulations and administrative orders is null. Note who the text protects: the natural person.

9. 9

   Step 9: What then happens to the debt: 75% and 25%

   The same paragraph writes it: the nullity gives rise to only seventy-five per cent (75%) of the principal debt being collectible. The remaining twenty-five per cent (25%) is paid to the Secretary of the Treasury. And it closes: no interest is owed except where it was expressly agreed. The article does not describe the procedure by which that 25% reaches Treasury, and this guide does not invent it.

There is no counter for applying this article: it is a contract rule. If the lender is a licensed entity, the Office of the Commissioner of Financial Institutions supervises it under its own statutes, which we did not read here. The nullity of the clause and its consequences are decided by the Court of First Instance.

• Looking for a maximum rate in Article 1328: it refers to statutes, regulations and administrative orders and publishes none.
• Confusing this article’s interest with the one that runs on court judgments.
• As the borrower of a gratuitous loan, expecting back interest paid voluntarily.
• Believing a gratuitous loan never generates interest: after the breach it is owed.
• Assuming interest is paid at the end: save different stipulation, it is per month in arrears or with each payment.
• As the lender, issuing an interest receipt without condition or reservation while earlier periods are outstanding.
• As the borrower, throwing those receipts away.
• Believing the last paragraph’s nullity wipes out the whole debt: only 75% of the principal is collectible, and 25% goes to the Secretary of the Treasury.
• Applying that nullity rule to a legal person: the text speaks of a natural person.

These are the government pages this guide is based on.

• Poder Judicial de Puerto Rico

  Poder Judicial

  bvirtualogp.pr.gov