New interest rates for loans and overdrafts
April 2024 - By RD of 12 January 2024 (publication on 25 January 2024), the reference interest rates for cheap loans were published.
These reference rates are used to calculate the benefit in kind for a loan granted by a company to its director(s) or employee(s). This is also used to determine the overdraft interest rate for the 2023 income year.
· The flat interest rate on a debit current account, where the company has a claim against an employee or director, is 5.43% for income year 2023 (it was 7.14% for income year 2022).
· The monthly charge rate for low-cost fixed-term non-mortgage loans granted to employees/directors for 2023 is:
* 0.25% for loans to finance a car (in 2022 it was 0.06%)
* 0.49% for other loans (in 2022 this was 0.12%)
· The interest rate for fixed-rate mortgage loans will be 3.14% in 2023, regardless of whether or not the loan is secured by mixed life insurance.
New formula annual charge rate
Note that the formula to calculate the real annual expense rate has been changed. Indeed, from an actuarial point of view, the old formula was found to be no longer correct.
Old formula:
Real annual charge rate = ( p * 24 * n ) / ( n + 1)
(where 'p' = monthly charge rate and 'n' = repayment period in months)
New formula:
Real annual percentage rate of charge = (1 + p )12 - 1
(where 'p' = monthly percentage rate of charge)
The above reference interest rates have been applied since 1 January 2023. However, the new formula only applies to 'new' loans concluded since 1 January 2023, while the previous formula continues to apply to 'older loans'.
