Loan contracts are one of the most common civil transactions today but also contain many potential legal risks. Among them, disputes related to interest rates account for a large proportion and often cause serious consequences for both the debtor and the creditor. The lack of understanding or the incorrect application of legal provisions on interest rates not only leads to financial damage but may also entail legal liability. This article analyzes the causes, the practical settlement, and proposes solutions to limit interest rate disputes in loan contracts in Vietnam.

1. Overview of Interest Rates and Relevant Legal Provisions

Interest rate is the amount of money that the debtor must pay to the creditor in addition to the principal received, considered as the “price” of using capital for a certain period of time. According to legal provisions, the parties have the right to freely agree on the interest rate in the loan contract, but this rate must not exceed 20% per year of the loan amount, unless otherwise provided by law. In case the contract has an agreement on interest payment but does not specify the exact rate, when a dispute arises, the applicable interest rate shall be 10% per year calculated on the loan amount at the time of repayment. If the parties agree on an interest rate exceeding the limit of 20% per year, the exceeding portion shall have no legal effect, only the portion within the limit shall be recognized. In addition, in case the debtor is late in paying interest, the maximum late payment interest rate shall be calculated at 150% of the contractual loan interest rate, in order to ensure the creditor’s rights and to limit prolonged late payment.

Disputes over interest rates are governed by the following provisions:

• Civil Code 2015: Article 468 provides for interest rates in loan contracts, while Article 466 provides for the debtor’s obligation to pay interest.
• Law on Credit Institutions 2024: Article 100 provides for interest rates and fees in the business activities of credit institutions.
• Circular 39/2016/TT-NHNN (as amended by Circular 12/2024/TT-NHNN): provides for lending activities of credit institutions to customers, including provisions on interest rates.

2. Common Interest Rate Disputes

In the process of performing loan contracts, interest rate is one of the issues that easily gives rise to conflicts between the parties. These disputes often revolve around the agreement, application, and performance of the obligation to pay interest. Some common types of disputes include:

• Disputes over interest rates exceeding the prescribed limit

This is the most common type of dispute in civil transactions. When the parties agree on an interest rate higher than 20% per year, exceeding the ceiling prescribed by law, the exceeding portion shall be considered invalid. In judicial practice, the Court usually only recognizes the lawful interest rate within the limit of 20% per year, while eliminating the exceeding portion in order to protect the legitimate rights of the debtor and to prevent usury.

• Disputes over unclear interest rate clauses

Many loan contracts only state generally “interest rate as agreed” without specifying a concrete figure or method of calculation. This leads to difficulties in determining the actual annual interest rate and comparing it with legal provisions. When disputes arise, the parties often cannot agree on the exact rate, causing conflicts in calculating the total interest payable. In Court, such vague clauses are very difficult to prove and are often disadvantageous to the party making the claim.

• Disputes over overdue interest and compound interest

In credit contracts, disputes over overdue interest and compound interest are quite common. Some credit institutions apply high penalty interest rates or calculate interest on overdue interest (interest on interest), causing the debtor’s debt to increase rapidly. However, current law does not allow multiple penalties for the same violation, and also restricts compound interest calculation to protect debtors from excessive financial burdens.

• Disputes over unilateral changes of interest rates

Another type of dispute arises when one party (usually the creditor) unilaterally changes the agreed interest rate without the debtor’s consent. In many credit contracts, the creditor often inserts a clause “adjusting interest rates according to the market” but applies it non-transparently, leading to an increase in interest rates beyond the legal limit. This causes damage to the debtor and becomes a cause of disputes.

3. Causes Leading to Interest Rate Disputes

Interest rate disputes may arise from the following main causes:

• Contract terms lacking strictness

Many loan contracts do not clearly stipulate the method of calculating interest rates, such as whether they are calculated on the principal balance or the declining balance, or only state generally without specifying a concrete figure. This vague wording easily leads to misunderstandings, causing the parties to have different interpretations when performing obligations, thereby giving rise to disputes.

• Interest rates exceeding regulations or not in accordance with the agreement

In some cases, the creditor unilaterally applies an interest rate higher than the agreed rate or exceeding the legal limit of 20% per year. In addition, if the agreement on interest rates is not made in a clear written form, when disputes arise, one party may deny or fail to remember the exact agreed rate, leading to difficulties in proving and protecting rights.

• The creditor unilaterally imposes additional conditions

In practice, especially in credit loan contracts with finance companies, in addition to the principal and interest, the creditor also attaches many other hidden fees. These fees increase the cost of borrowing, making the actual interest rate much higher than the initial agreement, thereby causing disputes.

• The debtor delays repayment of principal

When the debtor loses the ability to repay on time, disputes often arise related to late payment interest. The common issue is determining the lawful late payment interest rate and the calculation period, as the creditor often applies a high rate to offset risks, while the debtor argues that such rate exceeds legal limits.

4. Court Trends in Resolving Interest Rate Disputes in Recent Years

In the context of increasing disputes related to interest rates, Courts in Vietnam have formed settlement trends that are stable, transparent, and consistent with practice. Some notable points include:

• Strict application of the 20% per year interest rate limit under the Civil Code 2015

When the parties agree on an interest rate exceeding this limit, the Court usually declares the exceeding portion invalid and only recognizes the lawful portion. This demonstrates the determination of the judiciary in preventing usury while protecting the legitimate rights of the debtor.

• Comprehensive consideration of borrowing costs when assessing the legality of interest rates

Not only stopping at the interest rate figure stated in the contract, the Court also considers accompanying fees such as service fees, compulsory insurance fees, loan management fees… If the total actual cost borne by the debtor exceeds the legal limit, the Court may regard it as an act of circumventing the law and declare the exceeding portion invalid.

• Requirement of transparency in the calculation and application of interest rates

The Court increasingly emphasizes that the parties must clearly state the method of interest calculation in the contract (calculated on principal balance or declining balance, the time of calculation, the method of calculating overdue interest…). Contracts with vague or non-transparent clauses are often assessed unfavorably for the drafting party, especially the creditor.

• Protection of the debtor’s rights in cases of creditor abuse of advantage

In many cases, the Court has shown the viewpoint of protecting the weaker party (usually the debtor) in situations where the creditor exploits its position to impose unfavorable conditions, such as unilaterally increasing interest rates, charging hidden fees, or applying excessive penalties. This trend aims to balance the interests of the parties and limit abuse of power in credit relations.

• Prohibition of compound interest

A principle consistently applied by the Court is not allowing interest to be calculated on overdue interest (compound interest). This is to avoid the situation where debt increases unreasonably, creating excessive financial pressure on the debtor and going against the spirit of fairness in civil transactions.

5. Solutions for Resolving Disputes

In practice, disputes over interest rates may be resolved in various ways, depending on the level of conflict and the goodwill of the parties. Common solutions include:

• Negotiation and conciliation

This is the top priority solution as it helps save time, costs, and maintain the relationship between the parties. Through negotiation, the parties can review the contract together, reconsider relevant legal provisions, and seek a compromise solution. Successful conciliation not only resolves the dispute but also limits prolonged tension and conflict.

• The role of lawyers

If negotiation fails, seeking a lawyer is a necessary option. Lawyers will analyze the contract, assess the strengths and weaknesses of each party, and advise on current legal provisions. In addition, lawyers may represent clients in negotiations, protect legitimate rights, and propose effective dispute resolution strategies.

• Filing a lawsuit in Court

This is the last resort when negotiation and conciliation methods fail. The Court will base its judgment on records, contracts, and evidence. Normally, the Court will declare invalid the portion of interest exceeding the 20% per year limit under the Civil Code 2015 and recalculate the interest at the lawful rate. During the trial, if signs of usury are detected, the Court may transfer the file to the investigating authority for handling under criminal law.

6. Advice to Prevent Disputes

To minimize risks and avoid disputes related to interest rates in loan contracts, both creditors and debtors need thorough preparation, compliance with the law, and transparency in transactions.

• For creditors

The drafting of contracts must be carried out clearly and transparently, especially clauses on interest rates and calculation methods (on principal balance or declining balance). Creditors must strictly comply with the maximum interest rate limit of 20% per year under the Civil Code 2015 and publicly disclose the applicable rate. In case of changes in interest rates, clear and prior notice must be given to the debtor to avoid misunderstandings. In addition, keeping complete records related to disbursement and repayment is very important as legal evidence when necessary. Creditors should also avoid applying complicated and confusing interest calculation methods, as this easily causes disputes and disadvantages themselves in case of litigation.

• For debtors

Before signing the contract, it is necessary to carefully study the clauses related to interest rates, especially penalty interest for late payment. Debtors should request the creditor to clarify the calculation method and the total actual borrowing cost, including accompanying fees, to have a comprehensive view of financial obligations. Keeping complete records of loan receipt and repayment is necessary to prove the performance of obligations. When having questions or requests for changes related to interest rates, the debtor should communicate in writing to have clear evidence. At the same time, mastering legal provisions on interest rate limits will help debtors proactively protect their legitimate rights.

7. Conclusion

Interest rate disputes in loan contracts in Vietnam are becoming increasingly complex and diverse, reflecting the strong development of credit relations in social and economic life. The main causes stem from unclear agreements, application of excessive interest rates, lack of transparency in calculation, or imbalance of positions between creditors and debtors. To limit risks, the parties need to master and comply with current legal provisions, especially the Civil Code 2015, the Law on Credit Institutions 2024, and guiding documents of the State Bank. Transparent drafting of contracts, clear stipulation of interest rates and calculation methods, as well as keeping complete transaction records are practical measures to prevent disputes.

In case of conflicts, the parties should prioritize negotiation and conciliation to save time, costs, and maintain cooperative relations. If no agreement is reached, seeking legal advice or filing a lawsuit in Court is a necessary solution to protect rights and legitimate interests. It can be affirmed that legal knowledge, transparency in contracting, and goodwill in cooperation are the keys for the parties to limit disputes, while contributing to building a healthy, safe, and sustainable credit climate.

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