2020 Georgia Code
Title 7 - Banking and Finance
Chapter 4 - Interest and Usury
Article 1 - In General
§ 7-4-17. Payment Applied First to Interest; No Interest on Unpaid Interest; Exceptions

When a payment is made upon any debt, it shall be applied first to the discharge of any interest due at the time, and the balance, if any, shall be applied to the reduction of the principal. If the payment does not extinguish the interest then due, no interest shall be calculated on such balance of interest and interest shall be calculated only on the principal amount up to the time of the next payment. Notwithstanding the foregoing restrictions against charging interest on unpaid interest:

1. On loans having first priority on real estate and on loans secured by the pledge or assignment of instruments evidencing loans having first priority on real estate, the parties by written contract may lawfully agree that unpaid interest when due shall be added to the unpaid principal balance of the indebtedness and that the increased principal balance of the indebtedness bear interest pursuant to the terms of the contract; and
2. On loans secured by real estate or secured by real estate and other collateral, the parties by written contract may lawfully agree that, in the event of bankruptcy, the lender or creditor may include interest on its claim pursuant to the terms of the contract.

(Orig. Code 1863, § 2028; Code 1868, § 2029; Code 1873, § 2055; Code 1882, § 2055; Civil Code 1895, § 2883; Civil Code 1910, § 3433; Code 1933, § 57-109; Ga. L. 1982, p. 420, §§ 1, 2; Ga. L. 1984, p. 949, § 6; Ga. L. 1995, p. 956, § 1.)

- For article discussing methods of computation of finance charges in Georgia consumer credit contracts, see 30 Mercer L. Rev. 281 (1978). For article on Georgia's usury laws and interest on interest, see 8 Ga. St. U.L. Rev. 291 (1992).

JUDICIAL DECISIONS

Prepayments applied first to interest due, absent contrary agreement.

- In absence of agreement to contrary, prepayments on a loan must first be applied to interest due and owing at time they are made and then to principal. First Nat'l Bank v. Appalachian Indus., Inc., 146 Ga. App. 630, 247 S.E.2d 422 (1978).

- Since former Code 1910, § 3433 was for the benefit of creditor, it did not seem that the debtor could be heard to complain on account of interest-bearing principal having been reduced, with a consequent reduction to the debtor of the indebtedness, by application of the entire payment to principal instead of first extinguishing accrued interest. Rice-Stix Dry Goods Co. v. Friedlander Bros., 30 Ga. App. 312, 117 S.E. 762 (1923), aff 'd, 158 Ga. 303, 122 S.E. 890 (1924).

- When payment was made by the debtor, before interest was due on principal of debt, and the debtor did not direct that payment be applied to any particular claim, the creditor had the right to apply the payment to reduction of the principal of the debt. Massell Realty Co. v. Chamberlin, 47 Ga. App. 718, 171 S.E. 311 (1933).

In the case of a demand note, no time for payment is expressed; therefore, no interest would be due until payment is demanded. Unless the debtor has stipulated otherwise, the creditor has the right to apply any payments to the reduction of the principal of the debt when no interest was due at the time of payment. Spillers v. First S. Bank, 185 Ga. App. 580, 365 S.E.2d 151 (1988).

When mortgaged property is sold proceeds go to payment of interest notes, though they may have been transferred by payee. Berrie v. Smith, 97 Ga. 782, 25 S.E. 757 (1896).

- It is the general rule that the right to recover interest after payment of principal sum due depends upon whether interest is due by terms of the contract, or whether it is merely an implied incident to the debt and is allowed by way of damages. If it is due by terms of the contract, payment of principal is no bar to a subsequent recovery of interest, but if it is not due by such terms, payment of principal sum is generally a bar to recovery, except that when the obligation is one which by statute bears interest, this is taken as an equivalent contractual obligation to pay interest, and in such a case payment of entire principal does not defeat subsequent recovery of accrued interest. Rice-Stix Dry Goods Co. v. Friedlander Bros., 30 Ga. App. 312, 117 S.E. 762 (1923), aff 'd, 158 Ga. 303, 122 S.E. 890 (1924).

County's payment to landowners who were awarded $ 16.5 million in a condemnation action was not sufficient to pay principal and interest on the judgment the landowners obtained, and the appellate court held that the landowners were entitled to collect post-judgment interest on the amount which the county still owed. Threatt v. Forsyth County, 262 Ga. App. 186, 585 S.E.2d 159 (2003).

- Borrower's breach of contract claim against a lender based on a violation of O.C.G.A. § 7-4-17, forbidding the calculation of interest upon interest, was barred because the lender had executed loan modification agreements in which the borrower waived and released any claims the borrower had against the lender. Heritage Creek Dev. Corp. v. Colonial Bank, 268 Ga. App. 369, 601 S.E.2d 842 (2004).

- There is no statutory requirement that credit for proceeds must be applied to attorney fees first. Presumably, this matter is one which may be contractually agreed to by the parties. Bulman v. First Nat'l Bank, 165 Ga. App. 843, 303 S.E.2d 29 (1983).

Attorney was authorized by statute to charge interest at the rate charged and to apply the client's payments first to the interest due and then to the principal. At all times, the client could have avoided any obligation to pay interest by paying the principal in full each month as the client agreed to do. Cooney v. Rowland, 240 Ga. App. 703, 524 S.E.2d 730 (1999).

- Trial court did not err in granting a lender's motion for summary judgment because the doctrine of res judicata barred a debtor's suit alleging that the lender incorrectly charged interest on the debtor's unsecured revolving line of credit; the same matters were already litigated between the same parties in an action previously adjudicated on the merits by a court of competent jurisdiction. Rose v. Household Fin. Corp., 316 Ga. App. 282, 728 S.E.2d 879 (2012).

Cited in Price v. Comer & Co., 87 Ga. 468, 14 S.E. 122 (1891); Becker v. Shaw, 120 Ga. 1003, 48 S.E. 408 (1904); Young v. First Nat'l Bank, 22 Ga. App. 58, 95 S.E. 381 (1918); Worrill v. Hightower Mule Co., 32 Ga. App. 396, 124 S.E. 58 (1924); Humphreys v. W.L. Jessup & Sons, 43 Ga. App. 274, 158 S.E. 442 (1931); Reconstruction Fin. Corp. v. Puckett, 181 Ga. 288, 181 S.E. 861 (1935); Zahler v. Nat'l Collegiate Student Loan Trust 2006-1, 355 Ga. App. 458, 844 S.E.2d 530 (2020).

RESEARCH REFERENCES

Am. Jur. 2d.

- 44B Am. Jur. 2d, Interest and Usury, § 56.

- 47 C.J.S., Interest and Usury; Consumer Credit, § 131.

- When statute of limitations begins to run against action to recover interest, 36 A.L.R. 1085.

When contract construed to require interest to be paid in advance, 39 A.L.R. 951.

Right to have usurious payments of interest applied as credit on principal as affected by statute of limitations, 101 A.L.R. 741.

Check in payment of interest or installment of principal as an acknowledgment sufficient to take case out of statute of limitation, 125 A.L.R. 271.

Option of borrower to convey or transfer to lender in full satisfaction of balance due, property covered by mortgage or collateral securing loan, as affecting character as "interest," of payments by borrower, 163 A.L.R. 719.

What is "compound interest" within meaning of statutes prohibiting the charging of such interest, 10 A.L.R.3d 421.