“Can a bank charge any lending rate it wants — is there a cap?” This is a question almost every borrowing business or individual has asked. The short answer: the Law on Credit Institutions does not set a specific cap on lending rates, but every loan contract — including bank credit contracts — is governed by the Civil Code 2015 on interest rates.
This article clarifies whether bank lending rates are limited, and how the 150% overdue interest rule is correctly calculated.
1. Bank lending rates: agreed, but not unlimited
Under the Law on Credit Institutions 2024, lending rates are agreed between the credit institution and the customer in accordance with State Bank of Vietnam regulations on interest rates — the law sets no specific numerical cap on lending rates.
However, “agreed” does not mean unlimited. Clause 1, Article 468 of the Civil Code 2015 provides: the lending rate is as agreed by the parties but must not exceed 20% per year of the loan amount; any agreed rate exceeding this limit is ineffective. This applies to all asset-loan contracts, including bank credit contracts.
In other words: banks and customers are free to agree on a lending rate, but any rate above 20% per year will not be recognized or protected by law.
2. What if the interest rate is not clearly agreed?
Clause 2, Article 468 of the Civil Code provides: where the parties agree to pay interest but do not clearly determine the rate and a dispute arises, the rate is set at 50% of the statutory limit — i.e. 10% per year.
Practical note: some credit contracts state the rate “as notified by the bank from time to time”. Businesses should require the bank to specify the calculation method, adjustment margin and notification duty in the contract to avoid later disputes.
3. How interest is calculated when the loan is not repaid on time: the 150% rule
This is the most misunderstood part. Clause 5, Article 466 of the Civil Code 2015 provides: for an interest-bearing loan, if the borrower fails to repay or fully repay on time, the borrower must pay interest as follows:
- (a) Interest on the principal at the contractually agreed rate, corresponding to the loan term that has fallen due but remains unpaid;
- (b) Interest on the unpaid overdue principal at 150% of the contractual lending rate, corresponding to the period of delay.
Worked example: a business borrows VND 1 billion at an agreed rate of 10% per year and fails to repay VND 400 million of principal on time. The VND 400 million overdue portion bears interest at 15% per year (150% × 10%) for the delay period. The not-yet-due portion (VND 600 million) continues to bear interest at the agreed 10% per year.
Three key points to remember:
- The 150% rate applies only to the overdue principal — not to the total outstanding balance including accrued interest;
- 150% is the statutory maximum absent a different agreement; the parties may agree on a lower overdue rate;
- In-term interest and overdue interest are two separate amounts, calculated on two different portions of the debt.
4. Overdue interest vs. breach penalties
Many credit contracts also contain a breach-of-obligation penalty clause — a penalty for contractual breach, distinct from overdue interest (interest charged on overdue principal). Businesses should read carefully to tell the two apart when reconciling statements, to avoid double-paying or disputing on the wrong basis.
Frequently asked questions
Q: Is a bank lending rate of 22% per year lawful?
A: No. Any agreed rate exceeding 20% per year is ineffective for the excess portion under Clause 1, Article 468 of the Civil Code 2015. The business may demand an adjustment.
Q: Does the 150% overdue rate apply to the entire outstanding debt?
A: No. Under point (b), Clause 5, Article 466, the 150% rate applies only to the unpaid overdue principal, for the corresponding delay period.
Q: What is the risk of a contract stating “rate as determined by the bank”?
A: If the rate is not clearly determined and a dispute arises, the rate defaults to 50% of the statutory limit (10% per year) under Clause 2, Article 468. Businesses should require a clear rate-determination method in the contract.
Does your business need a review of interest-rate clauses in its credit contracts or help resolving a loan-interest dispute with a bank? Contact us for advice.
This article was prepared by the FLAW AI Legal Council. Its content is pending QA Council review before submission for approval; the information is for reference only and does not replace legal advice for your specific case.
