Default interest provisions in short-term, high-risk, unsecured commercial loans are not necessarily penalties even where the annualised rates are very high, provided the parties are sophisticated commercial actors, the loans are short-term (making annualisation misleading), and quantifying loss in the relevant market would be difficult and expensive. However, a fixed daily default charge that operates regardless of the amount of principal outstanding may create a triable issue as to penalty where the effective rate becomes extraordinarily high on small outstanding balances. The question whether unconscionability is a separate ground for striking down a default provision as a penalty remains unresolved.
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