1. What is a credit contract dispute?

According to Article 463 of 2015 Civil Code and Law on Credit Institutions 2024, a credit contract can be understood as a written agreement between a credit institution (such as a bank or finance company) and a client (an individual or an organization). Under this agreement, the credit institution commits to providing a loan, while the client is obligated to repay the principal amount along with interest according to the agreed-upon terms.

A credit contract must be made in writing and include terms regarding the loan amount, interest rate, loan term, repayment method, and the rights and obligations of all parties.

2. Why do credit contract disputes occur?

Credit contract disputes often arise from the following reasons:

• Client violates payment obligations:
  • Failure to repay the loan on time, or repayment with deficient principal or interest.
  • Intentionally delaying or failing to fulfill payment obligations.
• Bank/Credit institution applies non-transparent interest rates or fees
  • Interest rate changes not in accordance with regulations.
  • Late payment penalties or other fees not clearly agreed upon.
• The credit contract contains unclear or legally non-compliant terms
  • The contract content includes terms unfavorable to the client.
  • The contract lacks important information or fails to comply with legal regulations.
• Disputes over collateral Handling
  • The client disagrees with the handling of collateral.
  • The bank fails to handle the collateral in accordance with legal procedures.
• Third-Party intervention in Credit Contract
  • Disputes between the guarantor and the borrower.
  • Co-borrower or a third party complains about repayment obligations.

3. Consequences of credit contract disputes

Credit contract disputes can lead to numerous negative consequences for both borrowers and lenders, affecting the financial, legal, and reputatio of all parties involved. Below are some common consequences:

Firstly, serious financial losses

• For the borrower: Incurs late payment penalties, increased interest rates, and the risk of losing collateral. If the dispute is prolonged, the borrower may become insolvent and be listed as having bad debt.
• For the bank/credit institution: Failure to recover debts on time can increase the bad debt ratio, affecting cash flow and business operations.

Secondly, legal implications and prolonged litigation

If the parties cannot resolve the dispute through negotiation or mediation, the case may have to be brought before a court or commercial arbitration. Prolonged litigation is not only time-consuming and costly but also creates significant legal pressure for both sides. In the worst-case scenario, the borrower may face forced execution of judgment, asset liquidation, or even criminal liability if there are signs of legal violations.

Thirdly, impact on reputation and future borrowing capacity

• For individual or business borrowers: If classified as having bad debt in the credit information system, the borrower will face difficulties in obtaining loans from other financial institutions.
• For banks: If disputes are handled non-transparently or unfairly, the bank may lose credibility, affecting client trust.

Fourthly, negative impact on business operations

Disputes related to credit contracts can cause numerous negative impacts on a company’s business operations. When a dispute arises, the business faces the risk of frozen accounts, seized collateral, or being forced to repay the entire loan early, leading to cash flow imbalances and affecting its ability to continue operations. Furthermore, the occurrence of disputes can cause the business to lose their credibility, be listed as having bad debt, making it difficult to raise capital and cooperate with partners. Additionally, prolonged litigation processes not only consume time and high legal costs but also cause management to lose focus on business strategy, creating internal instability within the company. If the lawsuit is lost, the business may have its collateral liquidated by the bank and even face the risk of bankruptcy. To minimize these negative impacts, businesses need to carefully review contracts before signing, prioritize negotiation, mediation, and seek legal advice from lawyers to find optimal solutions, avoiding unnecessary legal and financial risks.

For individuals, the consequences of credit contract disputes will be similar to those for businesses.

4. Common types of credit contract disputes

Disputes over interest rates and penalties: Disputes over interest rates and penalties in credit contracts arise when there is a conflict between the borrower and the lender regarding the calculation of interest, penalty interest, early repayment penalties, or other incurred fees. Common disputes include the actual interest rate being higher than the agreed-upon rate, non-transparent interest calculation methods, excessively high overdue penalty interest, or banks charging unreasonable early repayment penalties. In addition, some cases involve the issue of compound interest (interest on interest) or collecting fees not included in the contract, causing significant damage to customers. To resolve disputes, clients need to carefully review the contract, negotiate with the bank, file a complaint with the competent authority, or seek legal advice to protect their rights. Understanding the terms of the contract before signing is the best way to avoid disputes over interest rates and penalties.

Disputes due to payment defaults: Disputes due to payment defaults in credit contracts occur when the borrower fails to fulfill their commitments regarding time, amount, or method of payment as agreed with the bank. Common causes of disputes include clients making late payments, being unable to pay, deliberately evading repayment obligations, or violating the terms for loan settlement. Additionally, some cases arise from the bank applying excessively high penalty interest rates or improperly handling collateral. When a dispute arises, the bank has the right to apply debt collection measures such as imposing penalty interest, demanding early loan settlement, suing in court, or liquidating collateral. To protect their rights, clients need to actively negotiate with the bank, seek solutions for debt rescheduling, or restructure the loan.

Disputes due to unclear contract clauses: Disputes due to unclear contract clauses in credit contracts often occur when conditions regarding interest rates, penalties, repayment terms, and the rights and obligations of the parties are not specifically stipulated or are subject to different interpretations. This can lead to conflicts between the borrower and the bank during contract execution. Some common disputes include non-transparent interest rate calculation methods, unclear collateral handling clauses, penalty provisions not strictly agreed upon, or the contract containing content unfavorable to the borrower. When a dispute arises, if negotiation is not possible, the client can complain to the bank, regulatory authorities, or sue in court to demand interpretation of the contract in their favor. To avoid risks, borrowers need to carefully review the contract before signing, request clarification of any ambiguous terms, and consult with a lawyer if necessary to ensure their rights and prevent disputes from arising later.

5. How to resolve credit contract disputes

Credit contract disputes are common issues between credit institutions and clients when conflicts arise regarding rights, obligations, or contract terms. Dispute resolution needs to be carried out through a reasonable process to ensure the rights of the parties and minimize legal risks. Below are the most effective dispute resolution methods.

Negotiation, Mediation: This is the top priority method, helping to save time and costs. The parties can negotiate directly to find a suitable solution, which may include extending the repayment period, reducing penalty fees, or restructuring the loan. If they cannot reach an agreement on their own, the parties can seek assistance from a third party (mediator) to facilitate the negotiation process.

Complaint to the Credit Institution/Bank: When negotiation is unsuccessful, the borrower can submit a complaint to the bank or credit institution itself to request a review of the contract. Additionally, the State Bank of Vietnam and consumer protection agencies can intervene if they find that the credit institution shows signs of violating the law or causing disadvantage to clients. This method helps resolve disputes administratively, reducing complex legal procedures.

Dispute resolution in Court: When negotiation and mediation are unsuccessful, credit contract disputes can be brought before the Court for resolution in accordance with legal regulations. This is the last resort to protect the legitimate rights and interests of the parties.

Dispute resolution at Commercial Arbitration: If the credit contract contains an arbitration clause, the parties can request the Commercial Arbitration Center to resolve the dispute.

Advantages of arbitration:

• Faster resolution compared to court.
• Flexible, confidential, and less costly process than litigation.
• Arbitration awards have legal binding force equivalent to court judgments.

6. Credit contract dispute resolution process

• Step 1: Collect evidence and contract documents.
• Step 2: Determine the cause and fault of each party.
• Step 3: Negotiate with the other party.
• Step 4: If negotiation fails, proceed with litigation.
• Step 5: Monitor the resolution process in court.
• Step 6: Appeal or Enforce Judgment

After a judgment is issued, if one of the parties disagrees with the judgment, they can appeal part or all of it. If the parties accept the resolution outcome (no party appeals), the judgment becomes effective, and the parties can voluntarily comply with it or request enforcement.

7. Important notes when signing credit contracts to avoid disputes

Read the contract carefully before signing: A credit contract is not just a loan agreement but also a binding legal commitment between the borrower and the bank. Carefully reading and understanding each clause before signing is key to protecting your rights and avoiding future legal risks. In reality, many disputes arise due to unclear terms, complex interest rate calculations, high penalty fees, or strict payment conditions that borrowers are unaware of. Therefore, before signing, special attention should be paid to the applicable interest rate (fixed or floating), incurred fees, payment methods, rights and obligations of the parties, and terms regarding collateral handling when repayment is not possible. Some banks may change policies or apply unfavorable terms that clients overlook, leading to serious financial damage. If the contract has complex content or a large loan value, consulting a lawyer will help the borrower identify potential risks and negotiate more favorable terms. Signing a credit contract is not just a financial transaction but an important decision with long-term implications, so caution from the outset will help avoid disputes and ensure a safe, transparent, and effective borrowing process.

Clearly agree on interest rates and penalty clauses: Interest rates and penalty clauses are two important aspects of a credit contract that directly affect the borrower's financial obligations. If not clearly agreed upon from the outset, the borrower may face high interest rates, unfavorable penalties, and unforeseen incurred costs. Therefore, before signing the contract, the following factors should be carefully considered:

a. Interest rate – Needs to be clear and transparent

• Determine the type of interest rate applied: Banks may apply a fixed interest rate (unchanged throughout the loan period) or a floating interest rate (changes with the market). If the interest rate is floating, the bank should be asked to clarify the adjustment formula, adjustment period, and maximum increase cap.
• Preferential interest rates and accompanying conditions: Some banks apply low interest rates initially, but then adjust them higher, creating financial pressure for borrowers. Therefore, it is important to carefully review the interest rate after the preferential period and compare it with market interest rates.
• Interest calculation formula: Determine whether the bank calculates interest on the initial principal balance or the declining principal balance, as this directly affects the total amount to be repaid.
• Overdue interest rate: If payment is not made on time, the bank will apply a penalty interest rate much higher than the initial loan interest rate. It is important to clearly check this rate and have a suitable financial plan to avoid heavy penalties.

b. Penalty clauses – Avoid unfavorable fees

• Early repayment penalty fee: If the borrower wishes to settle the loan early, many banks apply a penalty fee of 1-5% of the early repayment amount. This clause should be carefully reviewed to assess whether early repayment is advisable.
• Late payment penalty fee: When payments are late, banks often apply penalty fees and overdue interest rates much higher than normal loan interest rates. Some contracts also stipulate compound interest (interest on interest), causing the amount to be paid to increase rapidly.
• Other incurred costs: It is important to check whether the contract stipulates service fees, loan management fees, processing fees, credit insurance..., to avoid unexpected deductions.

c. Solutions to ensure rights

• Read carefully and ask the bank to explain each clause related to interest rates and penalties to avoid misunderstandings.
• Compare with contracts from other banks to ensure that interest rates and penalties are not excessively high compared to the general market.
• Negotiate with the bank to adjust unfavorable terms if possible, especially early repayment penalties and overdue interest rates.
• Consult a lawyer or financial expert to ensure the contract does not contain unfavorable terms.

8. What to do when a dispute arises?

a. Identify the cause of the dspute: First, clarify the issue causing the dispute, including:

• Did the bank change contract terms contrary to regulations?
• Did the borrower fail to fulfill payment obligations?
• Are there discrepancies in fees, interest rates, or repayment terms?
• Were disbursement conditions not met as committed?
• This step helps you determine the appropriate course of action and gather necessary evidence.

b. Recheck the credit contract: Carefully review the clauses related to the rights and obligations of the parties.

• Compare with legal regulations to determine the legality of the contract.
• If unfavorable or violating clauses are found, they can be used as a basis to protect your rights.

If in doubt, consult a lawyer for an accurate analysis of the contract.

9. How can a lawyer help in credit dispute resolution?

Credit contract disputes can cause serious financial damage, affecting the rights of clients. In this context, having a lawyer with specialized legal advice will help clients protect their rights to the maximum extent and ensure compliance with legal regulations.

a. Legal consultation before signing the contract

Lawyers review and analyze the content of credit contracts, helping clients identify potential risks.

Ensure that clauses regarding interest rates, penalties, repayment terms, and collateral handling are clearly stipulated, avoiding unfavorable terms.

Guide clients to negotiate with the bank to adjust unreasonable terms.

b. Protecting rights when disputes occur

Represent clients to work with banks, assisting in negotiation and finding mediation solutions to minimize risks and losses.

Gather evidence, prepare lawsuits if disputes cannot be resolved through mediation, ensuring the best protection of rights in court.

Support judgment enforcement, ensuring clients fully exercise their rights according to court judgments.

c. Preventing long-term legal risks

Lawyers help clients orient reasonable financial strategies, avoiding loans with unfavorable conditions.

Support in negotiating and handling bad debts, helping clients reduce financial pressure.

Provide continuous legal advice, helping clients always be proactive in credit transactions.

Hiring a lawyer for legal advice not only helps clients avoid risks when signing credit contracts but also ensures maximum rights during the borrowing process and dispute resolution. With deep understanding of the law and practical experience, a lawyer will be a reliable companion, helping clients feel more secure in all financial transactions.