What is overdue interest?

This is a measure used by banks to encourage borrowers to fulfill their payment obligations on time, and to compensate for the losses caused by late payment. Overdue interest is usually calculated based on the amount of overdue debt and the overdue period.

Illustration photo: VnBusiness.

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

- When a loan is overdue, the risk of the bank not being able to recover the debt increases, so the penalty interest rate is higher to compensate for this risk.

- Higher interest rates also act as an incentive for borrowers to make timely payments to avoid additional costs. In some cases, banks have to resort to legal action to recover debts, which in turn incurs higher costs.

Being charged late fees can have many negative effects on the borrower. The added financial burden of having to pay additional interest makes the total amount owed higher.

Late repayment and incurring overdue interest can negatively impact the borrower’s credit history, reducing their ability to borrow in the future. In severe cases, the bank may resort to legal action to recover the debt, posing legal risks to the borrower.

To avoid paying overdue interest, borrowers need to take the following measures:

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

- Search and choose loans with low interest rates to reduce total costs.

- 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 (synthesis)

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