Late payment interest arises from a party lending/borrowing any assets of other parties for a certain period that the borrower fails to pay or pays incompletely or is late to repayment obligations. Currently, late payment interest can arise from both loan and civil/ commercial contracts. During our legal consultation, BLawyers Vietnam has received many concerns on late payment interest from our customers.
Through this article, BLawyers Vietnam would like to provide you with an overview of late payment interest and notable issues.
1. The amount on which the interest of late payment incurred
(i) Late payment from civil or commercial contracts
If the contract-breaching party is late to pay the goods or service remuneration and other reasonable expenses, the violating party shall have the right to request interest payment on such late payment amount corresponding to the period of late payment.
(ii) Late payment from the loan contract
Currently, there are two loan contracts, including: (1) borrowing among individuals and organizations; and (2) bank credit loans. If the borrower fails to repay the loan within the agreed period, shall pay late payment interest.
Of note, these amounts of contract-violating fines, damage compensation from violation of contract, and unpaid interest shall not arise late payment interest.
2. Late payment rate
a. As for loan relationships
- Loan without interest: the late payment interest rate of 10% per year.
- Loan with interest: the lender can request the borrower to pay the following amount:
- The interest of principal debt: the late payment interest rate of 10% per year.
- The interest of unpaid principal debt: 150% of the loan interest of the contract equivalent to a late payment period that can reach 30% per year.
b. As for other civil relationships
- There is no agreement on interest: the late payment interest rate of 10% per year.
- There is an agreement on interest: maximum interest is 20% per year.
c. As for the commercial relationship
- There is no agreement on interest: the late payment interest rate is the average overdue interest rate of at least three local banks.
- There is agreement on late payment interest: the parties are free to agree.
3. Time to calculate the late payment interest
a. Beginning time
- There is agreement on the beginning time: It is the time to pay under the contract.
- There is no agreement on the beginning time:
- If the parties only agree on the delivery of assets without specifying the payment time limit is also the time of handing over the assets.
- When paying the rent without an agreement on the term of rent payment, this term will be determined according to the custom of where the payment is paid, or the lessee must pay upon returning the leased property.
- When using the service, the user shall pay a service fee at the time of performance of works upon service completion.
- For non-term and interest-free loan contracts, the lender has the right to reclaim the assets and the borrower also has the right to repay the debt at any time but must notify each other in advance at a reasonable time, unless otherwise agreed. However, no more than 3 months since the announcement.
b. Finishing time:
If the party is obliged to delay payment, the party must pay interest on the amount of late payment corresponding to the time of late payment.
4. Other notes
According to the current law, the interest rate must not exceed 20% per year. In case of agreement on the overdue interest rate, this overdue interest rate must not exceed 30% per year.
In case the interest rate exceeds the limit interest rate specified in this Clause, the excess interest rate shall not take effect. Even if the parties agree that the interest rate is a loan interest rate 05 times higher than the highest interest rate prescribed by law, i.e., 8.33% per month, the borrower may be responsible for the crime of usury.
In summary, the buying-selling and borrowing–lending activities of the subjects in society are increasingly diverse and complex. The grasp of the provisions of the law on late payment interest rates is essential to protect the rights and interests of the parties in case a dispute may arise.
Date: 28 July 2022
Writers: Tuyen Pham & Thu Tran
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