What is overdue interest?

This is a measure that banks use to encourage borrowers to fulfill their payment obligations on time, while also compensating for losses caused by late payments. Overdue interest is usually calculated based on the amount of debt overdue and the length of the overdue period.

Illustration photo: VnBusiness.

This interest rate is usually higher than the initial loan interest rate for several reasons:

- When a loan becomes overdue, the bank's risk of not recovering the debt increases, therefore higher penalty interest rates are applied to compensate for this risk.

- Higher interest rates also encourage borrowers to try to make payments on time to avoid incurring additional costs. In some cases, banks have to use legal measures to recover debts, which leads to higher costs.

Paying overdue interest can have many negative consequences for borrowers. The financial burden increases due to the additional penalty interest, resulting in a higher total amount to be repaid.

Late payments and the resulting overdue interest can negatively impact a borrower's credit history, reducing their ability to obtain future loans. In severe cases, banks may resort to legal action to recover the debt, posing legal risks to the borrower.

To avoid incurring late payment interest charges, borrowers should take the following measures:

- Create a detailed financial plan and closely monitor your finances to ensure you always have enough money to pay off debts on time.

- Search for and select loans with low interest rates to reduce the total cost you have to pay.

- In case of financial difficulties, borrowers should proactively contact and negotiate with the bank to find the best solution, such as extending the repayment period or restructuring the loan.

Hao Nhien (compiled)

Source: https://vtcnews.vn/lai-suat-qua-han-la-gi-ar913197.html