Interest on interest on unsecured loan.

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anoop bhatia (Querist)
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27 April 2012 Sir/Madam,

Generally I have seen that interest is payable @ 12% on o/s balance in Unsecured Loans.

On of the party is crediting unsecured loan a/c instead of interest payable a/c by debiting interest exp. a/c for making provision for payment of interest on 31-03-2011.
And paying this interest amount in sep. 2011.
Now while calculating the interest for 31-03-2012. they also calculating the interest on interest payable o/s till sep. 2011.

Hence I want to know whether the procedure is correct, can the party also pay the interest on o/s including interest of last year upto the date of its payment.

CA Pankaj Warke

CA Pankaj Warke (Expert)
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27 April 2012 It will depend on the terms of the agreement.

Generally, in such cases, the accrued interest is also credited to the party account and ultimately interesst gets calculated on the cumulative balance.

Guest

Guest (Expert)

27 April 2012 Yes, it is very much possible. There are no issues if terms of loan don't contradict payment of such interest.

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