kyt wrote:kivairu wrote:@Kratos , thanks for enlighting us based on law. A question here....Does the law put a cap on the interest one can pay on loan. Heard something like you can't pay over 100% interest on the principal.
it is also in the constitution
Id duplum rule comes into play only when the loan is non performing. As long as the loan is classified as performing, you can pay in excess of 100% i.e. you can't take a ksh 100 loan and dutifully pay 25 cents per month as agreed with the bank and expect the interest not to exceed ksh 100.
2. The Amendment (Banking (Amendment) Act, 2006 (Act No 9 of 2006) section 17)
As already stated, the Banking (Amendment) Act introduced section 44A in the Banking Act (Banking Act, cap 488, Laws of Kenya) which is reproduced here. Section 44A Limit on interest recovered on defaulted loans:
"An institution shall be limited in what it may recover with respect to a non performing loan to the maximum amount under subsection (2).The maximum amount referred to in subsection (1) is the sum of the following: the principal owing when the loan becomes non-performing; interest, in accordance with the contract between the debtor and the institution, not exceeding the principal owing when the loan becomes non-performing; and expenses incurred in the recovery of any amounts owed by the debtor."
The above cited two subsections formulate what is known as the in duplum rule. It can be seen from paragraph (b) of subsection (2) that the amount of accrued interest on the loan is restricted to equal the amount of the principal amount owing when the loan becomes non-performing. In effect, therefore, the lender cannot recover at any one given time an amount that is more than double the outstanding principal.