The fastest and most accurate way to calculate bank loan interest? What is the interest rate of the State Bank of Vietnam in 2022?
The fastest and most accurate way to calculate bank loan interest?
There are 2 ways to calculate the current bank loan interest rate, specifically:
How to calculate loan interest according to the principal balance
Regulations on how to calculate loan interest based on the principal balance are specified as follows:
With the method of calculating loan interest on the principal balance, the interest of each interest payment period will be the same throughout the entire loan process and is calculated based on the original principal amount.
Monthly interest = Principal balance x Loan interest rate/Lending period
Example of how to calculate loan interest on principal balance:
X borrows VND 36 million in 12 months at an interest rate of 12%/year.
The principal amount to be paid to the bank every month is: 36 million / 12 months = 3 million
The monthly interest payable to the bank is: (36 million x 12%)/12 months = 360,000 VND
The monthly payment amount is 3,360,000 VND
How to calculate loan interest according to the decreasing debt balance
In case of calculating loan interest according to the reducing balance, it is based on the actual amount owed after deducting the principal amount paid by the borrower in the previous months. As the loan balance decreases, the interest that the borrower has to pay will also decrease.
The formula for calculating interest on a decreasing balance is as follows:
- Monthly principal = Loan amount/Loan number of months
- Interest for the first month = Loan amount x Interest rate by month
- Interest in the following months = Remaining principal amount x Loan interest rate
Example: B borrows 72 million dong, for a term of 12 months, with an interest rate of 12%/year
Monthly principal = 72 million/12 = 6 million
First month's profit = (72 million x 12%)/12 = 720,000 VND
2nd month profit = (72 million - 6 million) x 12%/12 = 660,000 VND
The following months are calculated in the same way until the debt is paid off.
The fastest and most accurate way to calculate bank loan interest? What is the interest rate of the State Bank of Vietnam in 2022?
What is the loan interest rate prescribed by the State Bank of Vietnam?
Pursuant to Article 1 of Decision 1730/QD-NHNN of Vietnam in 2020 on the maximum short-term loan interest rate in Vietnam dong of credit institutions, foreign bank branches for borrowers to meet capital needs serving a number of economic fields and branches as prescribed in Circular 39/2016/TT-NHNN promulgated by the State Bank of Vietnam on loan interest rates according to current regulations of the State Bank of Vietnam as follows:
- Credit institutions and branches of foreign banks (except the People's Credit Funds and microfinance institutions) shall adopt the maximum interest rates for short-term lending in Vietnam Dong of 4.5%/year.
- The people's credit funds and microfinance institutions shall adopt the maximum interest rates for short-term lending in Vietnam Dong of 5.5%/year.
According to that, you see that the maximum short-term loan interest rate in Vietnam Dong is 4.5%/year and the People's Credit Funds and Microfinance Institutions apply the maximum short-term loan interest rate in Vietnam Dong is 5.5%/year.
How to calculate loan interest rate when credit institutions lend to customers?
According to the provisions of Article 13 of Circular No. 39/2016/TT-NHNN of Vietnam on lending activities of credit institutions, foreign bank branches to customers issued by the State Bank of Vietnam. Loan interest rates are as follows:
(1) A credit institution and its customer shall agree on the interest rate depending on capital demands and supplies on the market, loan demands and creditworthiness of customers, unless otherwise stipulated by the State Bank's regulations on the maximum interest rate set forth in Clause 2 of this Article.
(2) A credit institution and customer shall agree on the interest rate on short-term loan denominated in Vietnamese dong but shall not allow it to exceed the maximum interest rate decided by the State Bank’s Governor over periods of time in order to meet certain demands for borrowed fund as follows:
- Loans taken out to support the agricultural and rural development sector under regulations of the Government on credit policies for agricultural and urban development;
- Loans taken out to implement the export business plan in accordance with the Law on Commerce and other instructional directives thereof;
- Loans taken out to finance business activities of small and medium-sized enterprises under the Government’s regulations on support for development of small and medium-sized enterprises;
- Loans taken out to develop ancillary industries under the Government’s regulations on development of ancillary industries;
- Loans taken out to finance business operations of high technology application enterprises under the provisions of the Law on High Technology and other instructional directives thereof.
(3) Terms and conditions of an agreement on the interest rate shall comprise interest rate levels and methods for calculating the interest rate on a loan. Where the interest rate is not converted into %/year and/or the method for calculating the interest rate based on the actual outstanding amount of debt and time length of maintenance thereof is not applied, the loan agreement must include terms and conditions of the interest rate converted into %/year (one year is calculated as three hundred and sixty five of days) according to the actual outstanding amount of debt and time length of maintenance thereof.
(4) If a customer fails to repay or fully repay the agreed amount of loan principal and/or interest at the payment due date, the customer shall be obliged to repay loan interest as prescribed hereunder:
- The amount of interest on principal is charged at the agreed interest rate in proportion to the period during which repayment of that principal due has not been made;
- If a customer fails to make due payment of interest as prescribed by Point a of this Clause, that customer must pay late payment interest charged at the interest rate agreed upon between the credit institution and customer which is not allowed to exceed 10%/year interest rate on the outstanding balance of late payment interest in proportion to the period of late payment;
- Where a debt has become delinquent, the customer owing a delinquent debt must pay interest on the outstanding amount of principal which is overdue in proportion to the period of late payment for which the interest rate charged is not allowed to exceed 150% of the interest rate charged on due repayment that is determined upon the date of such debt becoming delinquent.
(5) Where the variable interest rate is applied, a credit institution and customer must enter into an agreement on principles and factors for determination of the variable interest rate, and on the date of adjustment to the loan interest rate. In cases where referring to factors for determination of the variable interest rate results in different loan interest rates, the credit institution shall apply the lowest loan interest rate.
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