Civil Code No 33/2005/QH11 ("2005 Civil Code") will be replaced by Civil Code No 91/2015/QH13 ("2015 Civil Code") January 1, 2017.

Essentially, civil laws respect the freedom of contract of the parties, but the parties must comply with general regulations of the law. Accordingly, even if loans are non-regular activities for certain enterprises, they may bring about more legal and commercial risks.

1. No mandatory interest

Some enterprises misunderstand that Loan Agreements require interest rate, resulting in an aversion to obtaining a loan from partners or customers. Whether or not there is interest is dependent on the agreement of the parties when getting the loan. Therefore, enterprises can absolutely enter interest-free Loan Agreements.

2. Limitation on interest rate

In cases where there is interest rate under the Loan Agreement, the rate is limited by law. The limitation of interest rate is in accordance with the laws as follows:

Pursuant to the 2005 Civil Code, the interest rate is agreed upon by the parties, but it must not exceed 150 per cent of the base rate announced by the State Bank with respect to the corresponding type of loans. Determination of the interest rate ceiling is quite complicated for enterprises, and therefore the agreed interest rates of parties are often too high or too low.

Pursuant to the 2015 Civil Code, in cases where there is the interest rate on the loan under the agreement of the parties, such rate must not exceed 20 per cent per year. Overall, this rate is higher than the rate stipulated in the previous regulations. Therefore, according to the financial capacity and the level of trust between the parties, the enterprises may carefully consider the interest rate under the Loan Agreement.

The new regulation also adds the sanction that if agreed interest rates exceed 20 per cent per year, the rates do not come into effect, and the rate stipulated by law will be applied.

3. Interest on late payment is obligatory

When enterprises provide loan without interest mainly with the purpose of support and assistance to the borrower, it is rare that the parties agree on paying interest on late payment of the loan. However, the parties should note that even if there is no agreement, the laws still regulate the late payment amount, in case the loans are without interest:

Pursuant to the 2005 Civil Code, if there is no agreement, the borrower will not have to pay interest on late payment.

Pursuant to the 2015 Civil Code, if the borrower does not repay or pays an insufficient amount when the loan is due, the lender has the right to request payment of interest at the rate of 10 per cent (determined by 50 per cent of the interest rate limit).

4. Apply late payment interest rate according to the agreement

Regarding  enterprises providing loans with interest, the regulations change in a direction which is more favourable for the lenders as follows:

Pursuant to the 2005 Civil Code, although the parties agreed on the late payment interest rate, it is obligatory to apply the base rate announced by the State Bank corresponding to the term of the loan at the time of repayment. In compliance with the 2015 Civil Code, when the loan is due and the borrower does not pay or pays less, he/she has to pay interest in compliance with the interest rate stated in the agreement, not the base rate prescribed in the 2005 Civil Code:

     Interest on unpaid due principal debts as agreed in the contract is corresponding to the term of the loan; in late payment cases, they must pay interest at the rate of 10 per cent (determined by 50 per cent of the interest rate limit).

     If there is no agreement, interest on the outstanding of overdue principal debt is 150 per cent of the contractual interest rate corresponding to the term of late payment.

Notably, the interest which the borrower must pay in accordance with the 2015 Civil Code is more than the interest stipulated in the old provisions because the agreed interest between the parties is usually higher than the base rate of the State Bank. —  PLF Law Firm