What is the maximum interest rate allowed on personal loans?

Law situation: Dear Lawyer, I'd want to ask you a question. I have some money saved that was provided to me by my son who lives in another country for costs, but I have a pension and don't need it. My relative, who works in real estate, recently required money to acquire and sell land for profit. They requested a high-interest loan from me. As a lawyer, I'd like to know what interest rate I may charge without breaking the law.

Legal opinion:

Thank you for reaching out to FDVN Law Firm (FDVN). Regarding your consultation request, FDVN has the following discussions after reviewing the applicable legal regulations:

1. Concerning the interest rate on loans, as prescribed by the Civil Code:

Article 463 of the Civil Code 2015 on Loan Contracts states that:

“Contract for the loan of property means an agreement between parties whereby a lender delivers property to a borrower. When the loan falls due, the borrower must repay the lender property of the same type in accordance with the correct quantity and quality, and must pay interest if so agreed or so provided by law”.

Article 463 of the Civil Code 2015 on Interest rate states that:

“1. The rate of interest for a loan shall be as agreed by the parties.

The rate of interest for a loan agreed by the parties may not exceed 20% per year, unless otherwise prescribed by law. According to actual conditions and at the proposal of the Government, the Standing Committee of National Assembly shall adjust the above interest and send report to the National Assembly at the latest session.

If the agreed interest exceeds the maximum interest prescribed in this Clause, the agreed interest shall become invalid.

2. Where parties agree that interest will be payable but fail to specify the interest rate, or where there is a dispute as to the interest rate, the interest rate for the duration of the loan shall equal 50% of the maximum interest prescribed in Clause 1 of this Article at the repayment time.”

According to the aforementioned rule, the interest rate in an individual loan agreement must be agreed upon by both parties, although it cannot exceed 20% per year of the loan amount. If the lending exceeds the statutory interest rate limit, the excess interest rate will be declared ineffective, and the act of lending with excessive interest may be subject to legal repercussions and fines depending on the nature and severity of the infringement.

2. Regarding the handling of lending with excessive interest rates:

Administrative fines may be levied if a pawnbroker engages in the business of pawnbroking with collateralized assets while charging interest rates that exceed the legal limitations provided by the Civil Code. The administrative fine might vary from 10,000,000 VND to 20,000,000 VND, according to Article 12, Clause 4 of Decree 144/2021/ND-CP.

Furthermore, the act of lending at exorbitant interest rates may be punishable under Article 201 of the Criminal Code 2015, as revised and added in 2017. The following are the specific provisions:

“Article 201. Usury in civil transactions

1. Any person who offers loans at an interest rate that is five times higher than the maximum interest rate specified in the Civil Code and earns an illegal profit of from VND 30,000,000 to under VND 100,000,000 or recommits this offence despite the fact that he/she has incurred an administrative penalty or has an unspent conviction for the same offence shall be liable to a fine of from VND 50,000,000 to VND 200,000,000 or face a penalty of up to 03 years' community sentence.

2. If the illegal profit earned is ≥ VND 100,000,000, the offender shall be liable to a fine of from VND 200,000,000 to VND 1,000,000,000 or face a penalty of 06 - 36 months' imprisonment.

3. The offender might also be liable to a fine of from VND 30,000,000 to VND 100,000,000, be prohibited from holding certain positions or doing certain works for 01 - 05 years.”

According to Clause 1 Article 2 of Resolution No. 01/2021/NQ-HĐTP, dated Deccember 20, 2021, the term "lending with excessive interest rates" refers to a circumstance in which a lender makes a loan to a borrower at an interest rate that is five times greater than the maximum interest rate provided in Article 468, Clause 1 of the Civil Code. When settling a case in which the loan is granted in assets other than money, the value of those assets must be changed into money at the time of transferring the borrowed assets.

The Civil Code specifies a maximum annual interest rate of 20%. When the interest rate surpasses 5 times the aforementioned limit, i.e. 100% per year, it is deemed excessive lending, and the perpetrator may be held criminally accountable for the aforementioned act.

FDVN provides the aforementioned legal advice based on studying applicable legal provisions. We hope FDVN's advice is beneficial to you.

Vu Dinh Thang - FDVN Law Firm.

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