Penalty Interest on a Late Settlement: What It Is and What It Costs
Property Lending
Default interest · Notice to complete · Settling fast
A late settlement can trigger penalty interest, also called default interest, that builds every day until the deal completes. This guide explains the rate and daily calculation, what a notice to complete means, who may have to pay when a bank or another party caused the delay, which finance paths may still fit, what documents to prepare, and what happens after a fast settlement. It is written for buyers and purchasers under pressure, not for conveyancers or accountants.
Quick Answer
Penalty interest, also called default interest, is a charge your contract of sale may add when a settlement runs late. Your contract controls the rate and calculation. Common reference or default figures are about 8 percent a year in New South Wales, 12 percent in Victoria under the standard form (the 10 percent statutory penalty interest rate plus 2 percent), and 10.84 percent for the Queensland REIQ default rate (as at July 2026), but your own contract can use a different figure. The charge is usually calculated as simple interest on the unpaid balance and stops when settlement completes under the contract.
If a notice to complete has already been served, contact your solicitor or conveyancer now and have the finance position assessed in parallel. Do not wait for one process to finish before starting the other.
| Your question | Short answer |
|---|---|
| What is penalty interest on a late settlement? | A contractual charge, also called default interest, that can apply when a party completes after the due date. The contract sets the rate and method. |
| How is it calculated? | Usually as simple interest: unpaid balance multiplied by the annual contract rate, divided by 365, multiplied by the number of late days. Check the exact clause. |
| How much is it? | Your contract controls. Common reference or default figures are about 8 percent in NSW, 12 percent in Victoria under the standard form (the 10 percent statutory rate plus 2 percent), and 10.84 percent for the Queensland REIQ default rate, as at July 2026. |
| When does it stop? | Usually when settlement actually completes, not when a replacement loan is approved or funds are merely ready. Your conveyancer confirms the final adjustment. |
| What is a notice to complete? | A formal notice that can make time essential and set a final deadline. The period depends on the contract and jurisdiction; around 14 days is common in NSW, but do not assume that applies everywhere. |
| What if the bank caused the delay? | The immediate liability still depends on the contract. Pay or settle the contractual position first if required, preserve the evidence, then get advice on any complaint or recovery claim against the party that caused the loss. |
| Can finance help? | Sometimes, where the borrower, purpose, security, equity, timing and exit fit. Not every fast commercial facility can be used for a personal home purchase or residential investment purpose. |
| What should I do first? | Ask your solicitor or conveyancer for the exact settlement status, default rate, deadline and amount needed, while a broker assesses the funding path in parallel. |
Where you are now, and what to do about it
Your next move depends on the stage you are at. The earlier you act, the more time you have to compare legal and finance options, confirm the real cost, and avoid being forced into the only option left. Use the table as a routing guide, then have your own contract checked.
| Where you are | What it means | What to do now |
|---|---|---|
| Finance is at risk, but settlement has not passed | You may still be able to avoid default | Get the lender status and every outstanding condition in writing. Ask for escalation, request an extension if needed, and assess a lawful backup funding path at the same time. In Queensland, ask your solicitor whether your contract carries the REIQ unilateral extension of up to 5 business days before you assume you need the vendor's agreement. |
| The settlement date has passed | Default interest may be running, but no notice has been served | Ask your conveyancer for the exact daily amount and amount needed to complete. Size the gap and the exit, then move quickly before more daily interest accrues. |
| A notice to complete has been served | A final contractual deadline may now be running | Treat it as urgent. Your solicitor checks whether the notice is valid and what date applies. A broker can assess whether finance can complete inside that window. Run both tracks together. |
| The deadline is only days away | Time, document quality and title position become critical | Prepare the full urgent document pack immediately. Do not assume a fast loan is available until the borrower, purpose, security, equity, consents and exit have been checked. |
| Settlement completed with short-term finance | The property is saved, but the temporary facility is now live | Start the refinance, sale or other exit immediately. Confirm the payout process, minimum term, expiry date, interest treatment and discharge steps rather than waiting until maturity. |
The legal question and the finance question run at the same time, not one after the other. Your solicitor or conveyancer manages the contract, the notice and the final settlement figures. A broker works out whether a suitable facility can complete inside the remaining window and what the exit looks like. Buyers who have been through a tight settlement date usually find both conversations happen together, and it is worth understanding how the settlement timeline drives the finance early rather than late.
What penalty interest on a late settlement actually is
Penalty interest, also called default interest, is money the party who settles late owes the other side under the contract of sale. For a buyer, it is the daily charge that starts running when you cannot complete on the agreed settlement date, and it keeps accruing until the transaction settles. It is not a fine from a court or a government charge; it is a term of the contract you signed, meant to compensate the vendor for being kept waiting for their money. Because it is written into the contract, the rate and the way it is worked out are set before the problem ever arises, which is why reading the default clause early matters so much.
The phrase gets tangled with a few other things that are not this problem, so it is worth drawing the line first. This guide is for a buyer facing default interest because a settlement is running late, most often because finance has not landed in time. It is not a stamp duty guide, a tax return guide, or a guide to what happens when the seller is the one who cannot settle.
What this guide covers
- A buyer or purchaser who cannot complete on the settlement date
- Default interest accruing daily under the contract of sale
- What a notice to complete means, and how the deposit is put at risk
- How a fast settlement can stop the interest mounting up
Different problem, different place
- Stamp duty charged on late-settlement interest is a State Revenue Office question your conveyancer handles, covered later as a fence
- Whether penalty interest is tax deductible is a question for your accountant or the ATO
- A seller who cannot settle on time is a different situation for your solicitor
Getting that distinction right matters, because the fix is different for each. The rest of this guide stays on the buyer-side finance case, from the first warning that finance may miss settlement through to the exit from any short-term facility. If your settlement date has some give in it, a deferred settlement may be part of the answer, and it comes up again later.
How penalty interest is set and calculated in Australia
There is no single national late-settlement rate. The contract of sale controls. In some jurisdictions a standard contract or statutory rate supplies a reference or fallback; in others the figure must be found in the particulars, special conditions or general conditions. The number in your signed contract is the one your conveyancer should use. Victoria shows why the distinction matters: the statutory penalty interest rate is 10 percent, but the interest condition in the Law Institute of Victoria and Real Estate Institute of Victoria standard form adds two percentage points on top of it, so the rate that actually applies under that contract is commonly 12 percent (LIV and REIV standard form contract of sale of land, general condition 33, August 2019 edition, read July 2026).
The calculation is usually simple interest on the unpaid balance. The liftable formula is: total penalty interest = unpaid balance multiplied by the annual contract rate, divided by 365, multiplied by the number of late days. A 10 percent annual rate is about 0.027 percent of the unpaid balance per day. Check whether the contract counts from the due date, allows a grace period, adds fees, or uses another method.
| Jurisdiction | What to check | Reference or default figure used in this guide | What not to assume |
|---|---|---|---|
| Victoria | The interest condition in the general conditions, plus any special condition; the statutory penalty interest rate is what it builds on | The statutory penalty interest rate is 10 percent a year, unchanged since 1 February 2017. The LIV and REIV standard form adds 2 percent on top, so the rate under that contract is commonly 12 percent | Do not assume the 10 percent statutory figure is your contract rate; the standard form adds a margin and a special condition can add more |
| New South Wales | The contract particulars and the Law Society of NSW and REINSW standard contract used for the sale | Commonly about 8 percent a year as the pre-printed standard-contract figure | Do not use the common figure without checking the signed contract and any special condition |
| Queensland | The contract reference schedule and the REIQ contract rate published by Queensland Law Society | 10.84 percent a year from 1 December 2025 until revised; Queensland Law Society states that this is simple interest | Do not use an older 10.61 percent figure for a current REIQ contract without checking the applicable date |
| Western Australia | The contract and its general conditions | No single figure is quoted here; use the rate and fallback in the contract form actually signed | Do not import the NSW, Victorian or Queensland figure |
| South Australia | The contract particulars, special conditions and standard conditions | No single figure is quoted here; have the conveyancer identify the operative clause | Do not assume one national default applies |
| Tasmania | The contract particulars, special conditions and standard conditions | No single figure is quoted here; have the conveyancer identify the operative clause | Do not assume a mainland standard-contract figure applies |
| Australian Capital Territory | The contract for sale and any standard or special conditions used | No single figure is quoted here; have the solicitor identify the operative clause | Do not assume the NSW figure applies merely because the jurisdictions are adjacent |
| Northern Territory | The contract particulars, special conditions and standard conditions | No single figure is quoted here; have the conveyancer or solicitor identify the operative clause | Do not assume one national default applies |
The practical takeaway is simple: use the state figures as a search and sense-check aid, not as a substitute for the signed contract. If the charge is already running and the fix is funding the gap, a caveat loan may be one option in a suitable case, but the borrower, credit purpose, security, equity and exit all have to fit.
The contract of sale: the clause that creates the charge
Default interest lives in the general conditions of your contract of sale, not in any separate document. The general conditions are the standard terms that sit behind the particulars you negotiated, and one of them deals with what happens to money still owing if a party does not settle on time. How the rate gets set varies by state. In Victoria the standard form's interest condition sets it directly, at 2 percent above the statutory penalty interest rate, without anything needing to be filled into the particulars. In Queensland the contract points to the default interest rate the Queensland Law Society publishes for REIQ contracts. In New South Wales the standard contract carries a pre-printed rate in the particulars that the parties can overwrite. In every case, you agreed to the charge, and usually to the rate, on the day you signed.
That is why the single most useful thing you can do before a settlement gets tight is read the default and interest clause and the particulars together, or have your conveyancer point them out. The Victorian standard contract of sale is published by Consumer Affairs Victoria, and the underlying rules sit in the Sale of Land Act 1962 (Vic) and, in New South Wales, the Conveyancing Act 1919 (NSW). Knowing the rate before you are late turns a nasty surprise into a number you can plan around, and it feeds straight into the decision about how quickly you need to settle.
What happens if you cannot settle on time
Missing the settlement date does not necessarily end the deal on its own, but it can start a clock that becomes more serious at each step. Default interest may begin under the contract. If the default continues, the vendor may serve a formal notice, called a notice to complete in some states and a default notice in others, that makes time essential and sets a final period to settle. The period depends on the contract and jurisdiction. Around 14 days is commonly used in New South Wales (Coutts Lawyers, as at July 2026), and the Victorian standard form runs its default notice on 14 days as well, requiring the default remedied and the reasonable costs and interest paid inside that time (LIV and REIV standard form, general conditions 34 and 35, read July 2026). It should not be treated as a national rule. The party serving the notice generally needs to be ready, willing and able to complete. If a valid deadline passes, the vendor may be able to terminate, forfeit the deposit and claim losses. Your solicitor should confirm each step in your own matter.
| Stage | What it is | What it costs or risks |
|---|---|---|
| Settlement date passes | You have not completed on the agreed day | Default interest starts running daily on the unpaid balance |
| Default interest accrues | The daily charge under the contract of sale | A growing amount on top of the price, until you complete |
| Notice to complete served | A formal notice that may make time essential; the period depends on the contract and jurisdiction | A final deadline may now be running, so the contract and deposit are at greater risk |
| Time-essential deadline | The final date the notice sets to complete | Miss it and the vendor can end the contract |
| Termination | The vendor exercises a valid right to end the contract after the deadline | Possible forfeiture of the deposit and a claim for contractual costs and losses |
Courts take an essential deadline seriously. In Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57 a purchaser who did not complete by a date the contract had made essential lost the contract when the vendors terminated, and the High Court refused to rescue the deal, holding that a defaulting buyer gets relief only where the vendor's own conduct was unconscionable, which a short delay and being ready soon after did not show. Read narrowly, the lesson is that once time is essential, being close is not the same as being on time. The deeper mechanics of responding to a notice to complete are a topic in their own right; here the point is simply that the notice is the step that ends the penalty-interest phase and forces a decision. If the terms here are unfamiliar, the notice to complete glossary entry is a plain-language start.
Who pays when the bank, conveyancer, vendor or system caused the delay?
The immediate answer comes from the contract, not simply from who made the first mistake. A buyer may still have to meet the vendor's contractual settlement claim even when the delay began with a bank, broker, conveyancer or another service provider. Whether the buyer can later recover that loss is a separate question about duty, breach, causation, evidence and the complaint or legal pathway available.
| Possible cause | Immediate settlement position | What to do next |
|---|---|---|
| Your bank or lender was not ready | The vendor's rights are still determined by the sale contract; the bank delay does not automatically erase default interest | Get the lender timeline and reason in writing, preserve every email and call note, complete if possible, then complain to the firm and seek advice on recovering a documented loss |
| A broker, conveyancer or solicitor error is suspected | Your legal representative should first protect the contract and quantify the loss | Preserve the file, instructions, timestamps and promises. Ask the professional for their complaint process and get independent legal advice before alleging liability |
| The vendor was not ready | You may not be the party in default, so do not agree that you owe interest without legal advice | Have your solicitor document readiness to settle, identify who caused the delay and reserve your contractual rights |
| PEXA, payment or another system problem occurred | The contract and any agreement between the parties still govern the adjustment | Ask the conveyancer to record the outage or failure, the time each party was ready, and any agreed waiver or rescheduled completion |
One asymmetry catches buyers out, and it is built into how the clause works rather than being unfair drafting. A penalty interest condition attaches to money owing under the contract during the default period, and at settlement it is the buyer who owes the balance, so in a normal sale the interest entitlement runs to the vendor and not the other way round. A buyer facing a late vendor is not without remedies. The Victorian standard form, for example, lets a party who has been breached claim compensation for reasonably foreseeable loss, and the default notice process is available to either side (LIV and REIV standard form, general conditions 32 to 35, read July 2026). Several states also set their own process for a late vendor. What you can claim, and how, is a question for your solicitor.
If a financial firm may have caused the loss, the usual complaint path is to complain to the business in writing first and keep the supporting documents. If the issue is not resolved, an eligible consumer or small business may be able to use an external dispute resolution scheme such as AFCA. Moneysmart sets out that complaint sequence and the information to include. This is separate from the urgent job of protecting the property contract.
If finance is the reason, identify the exact problem before choosing a fix
"The bank is not ready" can describe very different problems. The right response depends on whether the loan is approved but delayed, still conditional, short because of valuation, missing a document, or formally declined. Ask for the exact status in writing rather than working from a vague phone update.
| What has happened | What it really means | Useful next move |
|---|---|---|
| The loan is approved but the lender cannot meet the date | A timing and operations problem may exist rather than a credit problem | Escalate with the lender, obtain a realistic completion date, request an extension through the solicitor, and assess a backup only if the timing gap remains |
| Approval is still conditional | One or more conditions must be satisfied before the lender is committed | List every condition, owner, document and due time. Work the conditions and contingency path in parallel |
| The valuation is short | The approved loan may no longer cover the amount needed to settle | Calculate the exact cash shortfall, ask whether the valuation can be reviewed, and assess other security or funding only where suitable |
| The loan has been declined | The original credit path has ended unless the decision is reversed | Get the decline reason, avoid sending the same unsuitable file everywhere, and assess whether another regulated or commercial path genuinely fits the borrower and purpose |
| A document, insurance policy, contribution or discharge is missing | The issue may be fixable without changing lenders | Identify the exact missing item and the person responsible, then get a same-day completion plan and an extension request if required |
| There is a settlement cash shortfall | The purchase cannot complete even if the existing loan settles | Confirm the exact shortfall including adjustments and costs, then assess whether equity, another acceptable source of funds or a restructured transaction can lawfully cover it |
This diagnosis prevents a customer from taking an expensive new loan to solve a problem that was only a missing condition or a short operational delay. It also exposes cases where the real issue is a valuation, serviceability or cash shortfall that needs a different solution. A cash gap at completion is its own problem with its own fixes, covered in our piece on a settlement shortfall as the core problem.
Losing the deposit, and the vendor's costs and damages
The deposit is usually the first large amount put at risk. Many contracts use a 10 percent deposit, but the amount and the vendor's rights depend on the contract and the law in the relevant jurisdiction. If the vendor validly terminates after a buyer default, the deposit may be forfeited. Under the Victorian standard form, for example, ending the contract on the vendor's default notice forfeits the deposit up to 10 percent of the price, and the vendor can then either keep the property and sue for damages or resell and recover any shortfall on the resale plus the resulting expenses (LIV and REIV standard form, general condition 35, read July 2026). Other states reach similar outcomes through their own contracts. The exact rights, limits and procedure are legal questions for your solicitor, not assumptions to make from a general guide.
The useful comparison is not simply bank pricing versus short-term pricing. It is the verified cost and risk of each available path: completing with an extension, completing with replacement finance, or failing to complete. A deposit forfeiture, resale shortfall and legal costs may be material, but a rushed short-term loan can also be expensive and unsuitable. Have the solicitor quantify the contract position and the broker quantify the finance position before choosing.
Can you get an extension, and what it costs
An extension may be possible, but whether you can require one depends on the contract and the law, so do not assume it is a right. Where the vendor agrees, the new date and terms are usually documented by the parties' legal representatives. The vendor may require default interest to continue, ask for a fee or impose other conditions. An extension can buy time, but it should be documented and costed against the other paths rather than treated as certain or free.
Queensland is the exception, and it matters. Current REIQ contracts include a standard condition that lets either the buyer or the seller extend the settlement date unilaterally, by written notice given by 4pm on the settlement date, to a date no more than 5 business days after the scheduled settlement date. No reason has to be given and no proof is required. More than one notice can be used, provided the total does not exceed 5 business days. It was introduced in January 2022 for this exact situation, a financier not being ready on the day (REIQ, as at July 2026). Three limits matter: it moves the settlement date only, not a finance or building and pest condition; it can be removed by a special condition, so the contract you signed decides whether it is available; and if settlement still has not happened by 4pm on the fifth business day, the party who cannot settle is in default and the other party can terminate. If you are in Queensland and settlement is at risk, ask your solicitor about this first, because it costs nothing and it does not need the other side's agreement.
If your contract or your situation gives the date some flexibility, a deferred settlement is the formal version of this, and it can sit alongside finance rather than instead of it. Where the vendor will not move, though, the question becomes how fast you can fund the settlement yourself, which is where the next section comes in.
Can short-term settlement finance legally and practically fit your purchase?
Not always. The borrower and the purpose of the credit matter as much as the property. A fast facility marketed for business or commercial purposes is not automatically available for a personal home purchase or a residential investment purpose. Consumer-credit laws can apply to credit used for personal, domestic or household purposes and to credit used to purchase or improve residential investment property. The lender and product must be appropriate for the real purpose.
| Borrower and purpose | What it means for urgent finance | What to tell the broker immediately |
|---|---|---|
| Buying a home to live in | Consumer-credit rules are likely to matter, and many commercial-only rescue products will not fit | That the property will be owner-occupied, who the borrowers are, the exact shortfall and why the original loan is not settling |
| Buying or refinancing residential investment property | Do not assume "investment" automatically makes the loan commercial; regulated credit rules may still apply | The ownership structure, use of the property, source of repayment and whether any part of the credit has a business purpose |
| Commercial property, development or genuine business purpose | Commercial short-term options may be available where the security, equity and exit support them | The entity, business purpose, property details, existing debt, amount needed and dated exit evidence |
| Mixed personal and business purpose | The predominant purpose and legal classification need to be assessed rather than guessed | A truthful breakdown of every use of funds and who receives the benefit |
Important purpose check
Do not sign a business-purpose declaration just to make a commercial loan fit a personal or residential investment transaction. The declaration must reflect the real use of the credit. Ask the broker and your solicitor to explain the product, protections and documents before you sign.
How fast finance can stop the clock: the main settlement paths
When an extension is not enough and the existing lender cannot complete, another facility may fund the settlement and stop the contractual daily interest. The right path depends on the borrower, true credit purpose, property, title, equity, existing mortgages, consents, amount required, timing and exit. Speed is an outcome of a clean file, not a promise.
| Path | Indicative timing | What it needs | Main limitation |
|---|---|---|---|
| Escalate the existing lender | Potentially the fastest if the loan is approved and only an operational item remains | A named escalation owner, complete conditions, settlement booking and realistic completion time | It does not fix a credit decline, valuation shortfall or cash gap |
| Negotiate a settlement extension | Depends on the vendor and legal representatives, except in Queensland where a current REIQ contract may allow a unilateral extension of up to 5 business days | Vendor agreement, documented terms, a new date and a credible plan to complete; in Queensland, written notice by 4pm on the settlement date | It buys time rather than money and may add interest, fees or conditions |
| Caveat-supported short-term facility | Some simple, document-ready commercial-purpose cases can complete within a few business days, but timing is not guaranteed | A genuine caveatable interest, acceptable equity, clear title position, suitable purpose, documents and a dated exit | It is higher cost, purpose-sensitive and may be affected by existing mortgages, caveats or required consents |
| Private first or second mortgage | Several business days to weeks depending on valuation, legal work, consent and complexity | Acceptable property security, equity, loan documents, any first-mortgagee consent and a credible exit | More legal, valuation and security work can reduce speed |
| Replacement regulated home or investment loan | Usually slower than a clean commercial short-term file, but it may be the correct path for a consumer-regulated purpose | Full credit assessment, valuation, responsible lending checks, documents and lender capacity to meet the date | The deadline may be too short, so an extension may still be needed |
The caveat loan and private lending pages explain the commercial short-term options, with fuller detail in the caveat loan guide and the private lending guide, and it is worth knowing how fast short-term property finance can realistically move before you assume a deadline is unreachable. The common thread is the exit. A temporary facility only makes sense when there is a credible, dated way to repay it, such as a refinance, a contracted sale or funds that are demonstrably arriving. The next section explains the cost and protection trade-offs.
What settlement-rescue finance costs, and the protections around it
Short-term settlement finance is priced for speed, legal work and risk, so it generally costs more than a standard bank loan. The cost is a stack rather than a single rate: interest, establishment fees, legal fees, valuation fees, possible consent costs, and sometimes a minimum term or exit and discharge costs. Interest may be capitalised, added to the balance or deducted from the advance, which changes the net amount available to settle. Ask for a written funds-to-complete figure and a written total-cost illustration for the expected exit date.
The legal protections depend on the borrower, product and true purpose. Some facilities are consumer-regulated; others are genuinely business-purpose or commercial credit and can have fewer consumer-credit protections (ASIC INFO 207, as at April 2024). ASIC explains that the purpose test matters to whether the National Credit Code applies (ASIC INFO 101, as at October 2020). Never reshape the stated purpose to fit a product. Read the loan documents, check whether the lender is a member of AFCA and what complaint pathway applies, get independent legal advice, and compare the cost against every realistic alternative, including an extension and the verified consequences of failing to complete.
ASIC has made private credit a surveillance priority and published its private credit surveillance findings in 2025 (ASIC REP 820, as at late 2025). That is a reason to look closely at governance, valuation, conflicts, fees, documentation and exit assumptions, not a reason to treat every private lender as the same.
From our broking files, indicative and general
What tends to decide whether an urgent settlement file can move is not the headline rate. It is whether the file is legally suitable, fully documented and repayable.
- What tends to stall or stop a file: no credible exit; thin equity after the first mortgage and costs; a disputed title or existing caveat; a purpose that does not fit the proposed product; missing consent; an unclear settlement shortfall; and unrealistic timing with no complete documents.
- What tends to strengthen a file: the true purpose stated clearly; a dated, evidenced exit; clean title information; current mortgage figures; first-mortgagee consent where required; a solicitor ready to review documents; and engagement before the final deadline.
General information only, from broking experience, and not financial advice. This is not a rate, a cost, an approval, a timeline or an outcome you will get; every file depends on the borrower, purpose, security, exit and lender policy at the time. Speak to a qualified broker and to your solicitor and accountant.
What to have ready for an urgent settlement finance assessment
A fast assessment is only as fast as the information supplied. The goal is to let the solicitor, broker and lender answer four questions immediately: what must be paid, by when, against what security, and how the temporary debt will be repaid.
| Item | Why it matters |
|---|---|
| Signed contract of sale and every special condition | Shows the parties, property, price, settlement date, default clause, finance conditions and any unusual rights or obligations |
| Notice to complete, default notice and solicitor correspondence | Shows the legal stage, claimed deadline, interest position and urgency |
| Written settlement shortfall or funds-to-complete figure | Prevents the file being sized from an estimate that omits adjustments, duty, fees or other settlement amounts |
| Current lender status and outstanding conditions | Shows whether the existing loan is delayed, conditional, short, declined or still capable of settling |
| Property, title, valuation and existing mortgage details | Lets the security position, available equity, ranking, caveats and consent requirements be assessed |
| Borrower, company or trust documents and identification | Confirms who is borrowing, who owns the security and whether the proposed structure matches the real transaction |
| Evidence of the true use of funds | Allows the credit purpose and applicable legal framework to be assessed correctly |
| Dated exit evidence | Supports the repayment plan, such as refinance progress, an unconditional sale contract or another evidenced source of funds |
| Solicitor or conveyancer contact details | Allows legal documents, title issues and settlement mechanics to move without avoidable hand-offs |
Do not wait to make the pack perfect before sending the first documents. Send what exists, label what is missing, and give a realistic time for each missing item. A clean issue list is more useful than a folder of unlabelled files. Our piece on what a private lender needs to fund quickly covers the same pack from the lender's side.
What happens after short-term finance completes the settlement?
Completing the property settlement solves the contract emergency, but it starts the short-term loan. The exit should begin immediately, not near the maturity date. The borrower needs to know the actual amount advanced, interest treatment, expiry, minimum term, payout method, discharge process and the steps needed for the refinance or sale.
| Stage | What happens | What the borrower should do |
|---|---|---|
| Settlement day | The purchase completes and the contractual default-interest calculation is finalised through the settlement process | Obtain the completion statement and confirm the final amount paid, including interest and costs |
| First business days | The short-term facility is live and its interest and fees begin operating under the loan documents | Confirm the loan balance, interest method, expiry, minimum term, payment or capitalisation method, and the named contact for payout |
| Exit execution | The refinance, sale or other repayment event must be progressed | Book valuations, provide refinance documents, satisfy sale conditions and keep a dated exit tracker rather than relying on a verbal plan |
| Payout and discharge | The lender issues a payout figure and releases its security after payment and required documents | Request the payout early, check discharge timeframes and fees, and coordinate the incoming lender or sale settlement through the solicitor |
| If the exit is slipping | The risk shifts from the original property contract to the temporary loan maturity | Tell the broker and solicitor early, update the lender, and assess the revised exit before default or expiry rather than after it |
A rescue loan should not become a plan to "work it out later". The quality of the exit is part of the original credit decision and the borrower's risk management from day one.
Two things people confuse with penalty interest
Two questions come up constantly alongside penalty interest, and both need to be separated from the urgent contract and funding decision. The first is stamp duty. In Victoria, late-settlement interest is treated as part of the price for duty, because the State Revenue Office says that late settlement interest is part of the consideration that moves the transfer of the land and so forms part of the dutiable value (State Revenue Office Victoria, as at July 2026). That means paying default interest can slightly increase the duty on the purchase, but it is a conveyancing and duty matter your conveyancer or the State Revenue Office handles, not a finance cost. The second is tax. Whether penalty interest is deductible depends on how the property is used and on your own circumstances, so it is a question for your accountant or the ATO, and this guide does not treat it as deductible or otherwise.
The reason to separate these out is that mixing them up sends you to the wrong place for an answer. If your real question is the duty on the interest, your conveyancer and the State Revenue Office have it. If it is the tax treatment, your accountant does. What this guide covers is the decision in the middle: how to protect the contract, complete the settlement where possible, and avoid more daily interest and wider default risk.
What to do first, and where to get help
Run the legal and finance tracks together. First, ask your solicitor or conveyancer for a written position: the contractual settlement date, whether you are in default, the operative interest rate and formula, the amount needed to complete, whether a notice has been served, the final deadline, and what the vendor is willing to agree. Second, ask the lender or broker for a written finance position: approval status, every outstanding condition, valuation result, amount available, realistic settlement timing and the exact reason for any delay or decline.
Where to get help
You do not have to work this out alone, and some help is free.
- Talk to your conveyancer or solicitor first. They run the settlement and advise on the contract, notice, extension, deposit and any claim against another party.
- For free, independent financial counselling, call the National Debt Helpline on 1800 007 007, or see the financial counselling information on Moneysmart.
- If a bank or other financial firm may have caused a documented loss, complain to the business in writing first. Moneysmart explains the complaint pathway and when AFCA may be available.
- For legal help, LawAccess NSW or your state or territory law society can point you to advice, including free or low-cost options.
These are general pointers, not a referral or a promise of any outcome. Get advice specific to your contract, credit purpose and circumstances before you act.
If finance is part of the answer, send the urgent document pack above and ask for a written explanation of the proposed facility, net funds available, total cost at the expected exit date, security, consent requirements, conditions, expiry and payout process before committing.
Penalty interest, or default interest, is a contractual charge that may apply when settlement is late. The signed contract controls the rate, start date, calculation and consequences. The daily formula is usually the unpaid balance multiplied by the annual rate, divided by 365, multiplied by the late days, but the conveyancer should confirm the exact clause and adjustment. If finance is the cause, identify whether the problem is timing, a condition, valuation, decline, missing document or cash shortfall before choosing a new loan. If another party caused the delay, protect the contract first and preserve the evidence for any later complaint or recovery claim. Short-term finance only fits where the borrower, true purpose, security, equity, timing, documents and exit all work. The strongest response is two-track: the solicitor protects the contract while the broker gets to a truthful, fully costed and fundable answer.
Key takeaway: know the exact contract position, diagnose the real finance problem, run legal and funding work in parallel, and start the exit immediately if a temporary facility is used.Frequently Asked Questions
Penalty interest, also called default interest, is a charge your contract of sale adds when a party settles after the agreed date. For a buyer, it is a daily amount on the money still owed, meant to compensate the vendor for waiting, and it runs until the settlement completes. It is a term of the contract, not a court fine or a government charge, so the rate and the method are set the day you sign.
It depends on your contract, because the rate is set there rather than nationally. As a guide, the standard-form figures are commonly about 8 percent a year in New South Wales, 12 percent in Victoria, and 10.84 percent in Queensland (as at July 2026). The Victorian figure is the 10 percent statutory penalty interest rate plus the 2 percent that the Law Institute of Victoria and Real Estate Institute of Victoria standard form adds on top. A special condition can lift any of these, so the figure in your own contract is the one that applies to you.
Daily, on the balance you still owe. Daily penalty interest equals the outstanding amount multiplied by the annual rate from your contract, divided by 365, so a 10 percent rate is about 0.027 percent of the balance each day, and every day past the due date adds a little more until you complete. Some contracts allow a short grace period, while others calculate from the due date. Your conveyancer can confirm the exact start point and basis in your contract.
The Victorian penalty interest rate is 10 percent a year, and it has been unchanged since 1 February 2017 (Supreme Court of Victoria, as at July 2026). It is fixed under the Penalty Interest Rates Act 1983 (Vic), and it is the rate many Victorian contracts point to for default interest where the particulars do not state another rate. Because it can be re-fixed, it is worth confirming the current figure at the time you need it.
A delayed settlement usually starts default interest running under the contract, and if it is not completed the other party can serve a notice to complete that makes time of the essence. If the deadline in that notice passes, the vendor can terminate, keep the deposit and claim their losses. The delay does not automatically end the deal, but it starts a clock that gets more serious at each step, so the sooner you act, the more options you keep.
A finance delay or decline close to settlement does not automatically have to end the purchase. If your loan is declined or delayed close to settlement, default interest can start once the date passes and a notice to complete can follow, so the priority is to complete another way rather than wait. Where there is equity and a clear exit, short-term property-secured finance such as a caveat loan or private lending can fund the settlement while you sort out a longer-term loan or a refinance. Act as soon as you know the finance is at risk, ideally before the settlement date, because acting earlier usually leaves more time to compare suitable options, satisfy conditions and reduce avoidable rush costs.
A notice to complete is a formal notice one party serves when the other has not settled on time, making time of the essence and setting a firm deadline to complete. In New South Wales, about 14 days is commonly accepted as a reasonable period (Coutts Lawyers, as at July 2026), though what is reasonable depends on the circumstances. The party serving it must be ready, willing and able to complete themselves. If you miss the deadline, the vendor can terminate and forfeit your deposit, so treat a notice to complete as urgent and get legal advice straight away.
In most states, no. An extension is something the other party agrees to, and they are not obliged to agree. Queensland is the exception: current REIQ contracts let either the buyer or the seller extend the settlement date unilaterally, by written notice given by 4pm on the settlement date, to a date no more than 5 business days after the scheduled settlement date, with no reason required (REIQ, as at July 2026). More than one notice can be given provided the total does not exceed 5 business days. It moves the settlement date only, not a finance or building and pest condition, and it can be removed by a special condition, so check the edition and the special conditions in your own contract with your solicitor before relying on it.
Yes. Many contracts use a 10 percent deposit, but the amount and forfeiture rights depend on the contract and jurisdiction. If the vendor validly terminates after a buyer default, the deposit may be forfeited. The vendor can also resell and claim any shortfall, plus their costs, as damages. That is why completing the settlement, even with short-term finance, is often far cheaper than letting the contract fall over. If a notice to complete has been served, speak to your solicitor before the deadline.
Do not decide that from the deposit alone. Walking away can be expensive, but so can unsuitable short-term finance. If the vendor validly terminates, the deposit may be forfeited and the vendor may claim a resale shortfall or other recoverable losses and costs. But a temporary loan can also carry material interest, fees, security and exit risk. Before deciding, have your solicitor quantify the contract consequences and have the finance path fully costed, so you compare real alternatives rather than slogans.
It depends on your circumstances and how the property is used, so it is a question for your accountant or the ATO, not something to assume. This guide does not treat penalty interest as deductible or not; deductibility turns on the specific facts of your purchase and your tax position. Get advice specific to your situation before relying on any tax treatment.
Often yes, where there is equity and a clear exit. Short-term property-secured finance, such as a caveat loan or private lending, is designed to complete a settlement quickly when a bank cannot move in time, then be repaid from a sale or refinance. It costs more than a bank loan and only works with a credible, dated exit, so it suits a genuine timing gap rather than an ongoing shortfall. You can compare the options on our caveat loan and private lending pages, and talk a specific settlement through with a broker.
Some simple, document-ready commercial-purpose cases can complete within a few business days, but that is not guaranteed. The lender still needs a lawful and suitable purpose, acceptable security and equity, clear title information, any required consent, complete legal documents and a credible dated exit. A personal home purchase or residential investment purpose may require a regulated credit product, so the true purpose must be disclosed before speed is assessed.
A delayed electronic settlement through PEXA is treated like any other late settlement under your contract, so default interest can start and a notice to complete can follow. In practice the online workspace is rescheduled and completion is attempted again once the missing piece, usually funds or documents, is ready. The platform does not change your contractual position; the contract of sale still governs the interest and the deadlines, so the fix is the same: complete as soon as you can, and get advice if a notice to complete is served.
The sale contract determines the immediate position, so a bank delay does not automatically mean the vendor must waive default interest. A buyer may have to complete the contractual settlement and pay the adjustment first, then separately consider a complaint or recovery claim against the financial firm if its error caused a documented loss. Ask your solicitor to confirm liability under the contract, keep the lender timeline and all evidence, and complain to the business in writing before using an external dispute resolution path such as AFCA if eligible.
Possibly, but it is not automatic. Recovery depends on what the person or firm was required to do, what went wrong, whether that failure caused the loss, what evidence exists and which complaint, insurance or legal pathway applies. Protect the property contract first, preserve the full file and timestamps, quantify the final loss, use the firm's complaint process, and get independent legal advice before asserting liability.
Usually not, because of how the clause is built. Penalty interest attaches to money owing under the contract during the default period, and at settlement it is the buyer who owes the balance, so in a normal sale the entitlement runs to the vendor rather than both ways. That does not leave you without remedies. Depending on your contract and what happened, you may be able to claim compensation for reasonably foreseeable loss, such as storage or accommodation costs, serve a default notice, or negotiate an adjustment as part of a rearranged settlement. Several states also set their own process for a late vendor. Ask your solicitor what your contract and your state allow.
Do not assume so. Credit used for personal, domestic or household purposes, and credit used to purchase or improve residential investment property, may be regulated under consumer-credit laws. Many commercial-only caveat products will not fit those purposes. Tell the broker the real use of the property and funds, the borrower structure and the settlement problem. Never sign a business-purpose declaration that does not match the transaction.
Start with the signed contract and special conditions, any notice to complete, solicitor correspondence, the exact funds-to-complete or shortfall figure, the current lender status and outstanding conditions, property and title details, valuation and mortgage information, borrower or entity documents, identification, the true use of funds, and dated evidence of the exit. Include the solicitor or conveyancer contact so legal and settlement work can run in parallel.
Often the calculation uses calendar days because the contract states a per-annum rate calculated daily, but the contract controls. Do not assume weekends, public holidays, the settlement day or any grace period are treated the same in every contract. Ask your conveyancer for the exact start date, day count and final adjustment.
Usually not. Approval, loan documents, funds being ready and settlement completing are different events. The contractual charge generally stops when settlement actually completes or at the point the contract says it stops, so the conveyancer should confirm the final calculation. A loan approval only helps if every condition, legal document, funding step and settlement booking can be completed in time.
The property settlement completes and the original default-interest adjustment is finalised, but the short-term facility is now live. Confirm the actual balance, interest method, fees, minimum term, expiry, payout and discharge process, then execute the refinance, sale or other exit immediately. If the exit is slipping, raise it before maturity or default rather than waiting until the temporary loan becomes the next emergency.
What sources support this guide?
This guide uses primary and authoritative sources where they are available: courts, law societies, regulators, government guidance, case law and the standard form contracts themselves. It also uses clearly identified legal explainers for practical procedural points that are not stated in one national source. Material legal and regulatory figures are tied to a named source and review date in the relevant section or in the table below.
| Source | What it supports | As at |
|---|---|---|
| Supreme Court of Victoria, Penalty Interest Rates | The Victorian statutory penalty interest rate of 10 percent a year, unchanged since 1 February 2017 | Jul 2026 |
| Queensland Law Society, REIQ contract default interest rate | The 10.84 percent REIQ default contract rate from 1 December 2025 until revised, and that the rate is simple interest | Jul 2026 |
| Law Society of NSW and REINSW standard contract | The commonly used pre-printed NSW standard-contract figure, subject to the actual signed contract and special conditions | Jul 2026 |
| LIV and REIV standard form contract of sale of land (August 2019 edition) | The Victorian interest condition, which adds 2 percent to the statutory penalty interest rate on money owing during default; the 14 day default notice period; deposit forfeiture up to 10 percent with resale recovery; and compensation for reasonably foreseeable loss | Read Jul 2026 |
| REIQ, contract changes and standard condition 6.2 | The Queensland right for either party to extend settlement by up to 5 business days by notice given by 4pm on the settlement date | Jul 2026 |
| Coutts Lawyers, Notice to Complete | A plain-language NSW explanation of readiness, a reasonable notice period, time made essential and possible termination | Jul 2026 |
| Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57 | That missing an essential settlement deadline can cost the contract and equitable relief for a defaulting buyer is exceptional | Oct 2003 |
| State Revenue Office Victoria, Duty on late settlement and default interest | That late-settlement interest can form part of the dutiable value in Victoria | Jul 2026 |
| ASIC INFO 101 and INFO 207 | The importance of the true credit purpose, when consumer-credit laws may apply, and the different protection position for commercial credit | 2020 to 2024 |
| ASIC REP 820, Private credit surveillance | ASIC's 2025 surveillance findings and regulatory focus on private credit | Late 2025 |
| Moneysmart, How to complain | The sequence of complaining to the financial business first, keeping documents, and using external dispute resolution such as AFCA where eligible | Jul 2026 |
The Queensland rate is the "Default Interest Rate" published by the Queensland Law Society for REIQ contracts. The complaint pathway is summarised from Moneysmart. Regulatory and legal positions are summarised, not reproduced in full. Rates, contract forms and legal positions can change, so the current source and the signed contract should be checked before anyone acts.
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