This is the English version of a Turkish article. The original, with further detail and linked petition templates, is at Faiz Türleri: Yasal Faiz, Temerrüt Faizi ve Avans Faizi.
The type and rate of interest depend on whether the claim is ordinary or commercial, and on whether the contract fixed a rate. In commercial transactions the default rate may be the Central Bank's short-term advance rate, which is higher than the statutory rate. And the date from which interest runs must be stated expressly in the claim.
The head most often lost in a debt claim is interest — not through any error of law but because the type of interest and the date it runs from were not written into the claim.
This article sets out the types of interest, which applies to which claim, and how the starting date is fixed.
Statutory Interest and Default Interest
The Act on Statutory Interest and Default Interest (Law no. 3095) defines two basic types.
Statutory interest: where interest is payable under the law of obligations and the rate was not fixed by contract, it is paid annually at the rate the statute lays down. That rate may be changed by presidential decision.
Default interest: a debtor in default on a sum of money must, unless the contract provides otherwise, pay default interest for the period of delay at the statutory rate.
Where the contract fixes a default rate higher than the statutory rate, that higher rate applies without any further agreement being needed.
Which Rate Applies in Commercial Transactions?
Article 2/3 of Law no. 3095: in commercial transactions, where no default rate has been agreed, the rate applied by the Central Bank for short-term advances on 31 December of the preceding year is taken — and where that rate has changed by a defined margin as at 30 June, the changed rate applies for the second half of the year.
That rate is higher than the statutory rate. Failing to claim it in a commercial matter is a serious loss.
Article 1530 of the Commercial Code deals separately with late payment in the supply of goods and services: where the contract makes no provision, or its provisions are invalid, the creditor becomes entitled to default interest without any notice being required, at the rate the Central Bank announces.
That is a strong protection for creditors in dealings between merchants.
From What Date Does Interest Run?
The starting date matters as much as the rate.
Debts with a fixed due date. Under Article 117/2 of the Code of Obligations, where the day for performance was fixed by the parties together, or by one of them by proper notice under a right reserved in the contract, the debtor falls into default when that day passes, without any notice being required.
Where there is no due date: a notice from the creditor is required, and interest runs from the date of the notice.
In tort: interest runs as a rule from the date of the wrongful act, and no notice is required.
In unjust enrichment: interest runs as a rule from the notice or from the date of the claim.
In employment claims: for severance pay, the highest deposit interest rate may be claimed from the date of termination; for other employment claims, the statutory rate or any special rate applies according to what is claimed.
That last distinction is often overlooked and causes substantial loss on severance pay.
| Claim | Interest runs from | Rate |
|---|---|---|
| Debt with a fixed due date | The day after the due date, without notice | Contractual, otherwise statutory |
| Debt with no due date | The date of the notice | Statutory |
| Commercial claim | Default, or under Art. 1530 without notice | Central Bank short-term advance rate |
| Tort | The date of the wrongful act | Statutory |
| Unjust enrichment | The notice or the claim | Statutory |
| Severance pay | The date of termination | The highest deposit rate |
| Other employment claims | Default, or the date of the claim | Statutory or a special rate |
The court cannot award more interest than is claimed, nor from an earlier date than is claimed — which is why the claim must state both expressly.
The Prohibition on Compound Interest
Charging interest on accrued interest is prohibited as a rule. Article 121 of the Code of Obligations provides that no interest may be charged on default interest.
There is a limited exception for accounts current between merchants and for certain banking transactions, on the conditions the legislation lays down.
In practice this is a frequent ground of objection in enforcement proceedings: a claim calculated on a compound basis, or with charges added to the principal and interest run on the total.
How to Claim Interest
Three lines decide how much you recover:
- The type: statutory interest, default interest, the commercial advance rate, or the highest deposit rate.
- The date: from the due date, from the notice, from the wrongful act, or from termination.
- The amount it runs on: the principal, and whether the claim is a partial one.
Where the claim is a partial one, interest is awarded only on the part claimed; when the claim is later increased, interest on the increase runs from the date of that increase unless the position is reserved.
A court cannot award a higher rate than the one claimed, nor interest from an earlier date than the one claimed. In a commercial matter that means naming the Central Bank short-term advance rate, and in a severance claim the highest deposit rate from the date of termination — two lines that are worth more than most of the argument that follows.
Frequently Asked Questions
What is the difference between statutory and default interest?
Statutory interest is the rate applied where the law requires interest and no rate was agreed. Default interest is what a debtor in default on a money debt must pay, at the statutory rate unless the contract provides otherwise.
Which rate applies to commercial claims?
Where no rate was agreed, the Central Bank's short-term advance rate, which is higher than the statutory rate. Under Article 1530 of the Commercial Code it may run without any notice.
From what date does interest run?
From the day after a fixed due date without notice; otherwise from the notice. In tort, from the date of the wrongful act; for severance pay, from the date of termination.
What rate applies to severance pay?
The highest rate applied to bank deposits, running from the date of termination. It must be claimed expressly.
Can interest be charged on interest?
As a rule no. Article 121 prohibits charging interest on default interest, with limited exceptions for accounts current between merchants and certain banking transactions.