Legal Rate of Interest Australia 2025: Essential Guide for Borrowers & Lenders

The legal rate of interest might sound like a technical footnote, but it’s a key player in Australia’s financial and legal landscape. Whether you’re a borrower, lender, business owner, or simply managing a late payment, understanding the legal rate of interest can help you navigate contracts, court judgments, and even everyday financial disputes. In 2025, recent updates and ongoing discussions have brought this rate into sharper focus, with implications for everyone involved in lending or borrowing money.

What Is the Legal Rate of Interest?

In simple terms, the legal rate of interest is the default interest rate applied to unpaid debts or court-awarded judgments when no other rate is specified in a contract. Set by state and territory legislation, this rate serves as a benchmark in both commercial and personal transactions. It ensures fairness and consistency when parties have not agreed on their own rate, or when a court needs to calculate interest owed on outstanding amounts.

• Applied to court judgments: When a court awards monetary damages, the legal rate of interest is often used to calculate additional compensation for the time the debt was unpaid.
• Fallback for contracts: If a contract does not specify an interest rate for late payments, the legal rate may apply by default.
• Varies by jurisdiction: Each Australian state and territory sets its own legal rate, typically updated annually or in response to economic shifts.

For example, in New South Wales, the legal interest rate is set under the Civil Procedure Act 2005 and reviewed annually. As of 2025, the NSW Supreme Court has confirmed the rate at 5.5% per annum, reflecting the Reserve Bank’s ongoing efforts to stabilise inflation and borrowing costs.

2025 Updates: Interest Rate Movements and Policy Trends

Australia’s legal rate of interest has seen renewed attention in 2025, with several states adjusting their rates in response to the Reserve Bank of Australia’s (RBA) monetary policy decisions. With inflation moderating but still above long-term targets, the RBA has maintained the cash rate at 4.35% as of June 2025. State courts have followed suit, with rates now typically ranging from 5% to 6% per annum depending on the jurisdiction.

• Victoria: The legal rate of interest is pegged to the RBA cash rate plus a margin, resulting in a 5.85% rate for 2025.
• Queensland: The Supreme Court Practice Direction sets the rate at 5.25% for the current financial year.
• Western Australia: The rate stands at 6%, with periodic reviews expected in line with broader economic indicators.

These adjustments matter for both individuals and businesses. For instance, a supplier chasing a late payment can apply the legal rate of interest if their contract is silent on penalties, potentially recovering hundreds or even thousands of dollars in additional compensation.

Policy discussions in 2025 have also touched on whether these statutory rates should more closely track real market rates, especially during periods of rapid economic change. While no sweeping reforms have been announced, several state governments are considering more frequent reviews to ensure legal interest rates remain aligned with lending conditions.

Implications for Borrowers, Lenders, and Businesses

The legal rate of interest isn’t just a theoretical construct—it has tangible effects on financial outcomes:

• For borrowers: If you owe money and a court judgment is entered against you, the legal rate determines how quickly your debt grows. Even a few percentage points can make a significant difference over time.
• For lenders and creditors: Knowing the current legal rate allows you to calculate the compensation you can claim for late payments, unpaid invoices, or court-ordered debts.
• For businesses: Clear contract terms specifying interest on overdue amounts can avoid ambiguity and ensure you’re not limited to the (sometimes lower) legal rate.

Consider the following real-world scenario: A small business in Melbourne secures a court order for $20,000 in unpaid invoices. If the debtor delays payment by a year, and the legal rate is 5.85%, the business can claim an additional $1,170 in interest. This can be the difference between a marginal profit and a meaningful financial setback.

How to Find and Apply the Current Legal Rate of Interest

Staying up to date with the legal rate of interest is crucial for anyone involved in disputes or commercial transactions. Here’s how to ensure you’re using the correct rate in 2025:

1. Check the Supreme Court website or relevant legislation for your state or territory. Rates are typically published annually and updated in line with economic conditions.
2. If your contract specifies an interest rate for late payments, that rate will generally apply unless it is deemed unfair or unlawful.
3. For court proceedings, include a claim for interest at the current legal rate if your contract is silent or the debt is not otherwise covered.

Most importantly, businesses should regularly review their standard contracts to ensure they specify an appropriate interest rate for overdue payments—preferably one that reflects current market conditions and not just the statutory minimum.

Looking Ahead: The Future of Statutory Interest Rates

With Australia’s economic environment evolving rapidly, legal rates of interest are likely to remain under review. The move towards more dynamic, responsive rate-setting could see statutory rates change more frequently, aligning more closely with RBA policy and market benchmarks. For now, being aware of the current rate and how it applies to your situation is the best way to safeguard your financial interests—whether you’re lending, borrowing, or enforcing a court judgment.