Guidance on calculating interest for overdue loans in Vietnam (latest)

Guidance on calculating interest for overdue loans in Vietnam (latest) (Illustration)

1. Loan contract and interest rate regulations in the loan contract in Vietnam

A loan contract is an agreement between parties, where the lender delivers the assets to the borrower; when due, the borrower must return to the lender the same type of assets in the exact quantity and quality and must pay interest if there is an agreement or the law in Vietnam stipulates.

A loan contract includes interest-bearing loans and non-interest-bearing loans. For interest-bearing loans, Article 468 of the Civil Code 2015 stipulates the maximum interest rate as follows:

- Loan interest rates are agreed upon by the parties. If the parties agree on an interest rate, it shall not exceed 20% per year of the loan amount, unless otherwise provided by relevant laws;- If the parties agree on paying interest but do not specify the interest rate and there is a dispute, the interest rate shall be 10% per year of the loan amount;- If the agreed interest rate exceeds the stipulated limit, the excess portion of the interest rate shall have no effect.

2. How to calculate interest for overdue loans in Vietnam

Despite the legal provisions on in-term and overdue loan interest, due to differing perceptions and understandings of the borrower and the lender, many disputes have arisen from inaccurate determination of loan interest. This is especially true for overdue loan repayments. So, how should overdue interest be accurately and legally calculated?

Article 5 of Resolution 01/2019/NQ-HDTP guides the calculation of overdue loan interest based on the Civil Code 2015 of Vietnam as follows:

Interest on unpaid principal within the term:

- In case of a specified loan interest rate: Interest on unpaid principal within the term shall follow the agreed upon interest rate but not exceed 20% per year equivalent to the unpaid loan term at the time of the contract establishment.

Interest within term = Loan amount x Agreed interest rate x Unpaid interest period

- In case of an agreement on interest payment without a clear interest rate and a dispute arises, the interest rate shall be 10% per year.

Interest within term = Loan amount x 10% per year x Unpaid interest period

Interest on unpaid interest:

In the case of late payment of interest on the principal within the term, additional interest on unpaid interest shall be paid at a rate of 10% per year equivalent to the late payment period of the interest on the principal, unless otherwise agreed.

Interest on unpaid interest = Unpaid interest x 10% per year x Late payment period

Interest on overdue principal:

Interest on overdue principal equals 150% of the agreed loan interest rate corresponding to the late payment period, unless otherwise agreed. The overdue principal interest rate agreed by the parties shall not exceed 150% of the stipulated interest rate (20%/year).

Overdue interest = Unpaid principal amount x 150% of agreed interest rate x Late payment period of the principal

Example: On November 4, 2017, A signed a loan contract with B for an amount of 320,000,000 VND with a loan term of 1 year. The loan interest rate is 15% per year. By the agreed due date in the contract (November 4, 2018), A had only repaid B 120,000,000 VND of the principal and had not paid the loan interest as specified in the contract. B repeatedly urged A to repay the remaining debt but A did not comply. On May 4, 2020, A filed a lawsuit against B at District X Court to reclaim the assets. Thus, as of May 4, 2020, the temporarily calculated amount that A must repay B is as follows:

- The unpaid principal amount is 200,000,000 VND.- The late payment period is calculated from the agreed due date in the contract (November 4, 2018) to the date of filing the lawsuit (May 4, 2020), which is 1 year and 6 months.- Interest within term = 320,000,000 VND x 15% x 1 year = 48,000,000 VND- Interest on unpaid interest = 48,000,000 VND x 10% x 1 year 6 months = 7,200,000 VND- Overdue interest = 200,000,000 VND x (150% x 15%) x 1 year 6 months = 67,500,000 VND.

In total, A is obligated to repay B the amount = 200,000,000 + 48,000,000 + 7,200,000 + 67,500,000 = 322,700,000 VND.

Duc Thao

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