WHAT IS OVERDUE DEBT? PROCESS AND EFFECTIVE SOLUTIONS

During the process of borrowing capital or financial cooperation, many individuals and businesses fall into overdue debt situations - when they are unable to make payments on time as committed. This issue not only affects credit reputation but also leads to various legal and financial consequences. So, what is overdue debt, how is it handled and how can risks be effectively minimized? The article below will help you clearly understand the nature of overdue debt and how to proactively control it.

What is overdue debt?

Overdue debt is a debt that the borrower fails to repay on time as agreed in the loan contract or financial agreement. When the payment due date arrives and the borrower does not pay part or all of the principal and/or interest, the debt is considered overdue.

Depending on the length of the delay, overdue debt may be classified as bad debt, affecting an individual’s credit score or a company’s financial credibility. In addition, borrowers may incur penalty interest, late payment fees or legal sanctions.

How to calculate overdue debt and debt classification

Overdue debt is calculated based on the payment due date clearly stated in the credit contract or civil agreement.

The formula for calculating overdue interest is commonly applied as follows:

Overdue interest = (Overdue principal amount) × (Overdue penalty interest rate) × (Number of overdue days / 365)

The overdue penalty interest rate is usually higher than the normal interest rate, ranging from 50% to 150% depending on each bank’s regulations.

The number of overdue days is calculated from the due date on which the borrower has not fulfilled the repayment obligation.

Classification of overdue debt

According to the regulations of the State Bank of Vietnam, overdue debt is commonly classified into three groups:

• Substandard debt (Group 3): Overdue from 10 – 90 days.

• Doubtful debt (Group 4): Overdue from 91 – 180 days.

• Loss debt (Group 5): Overdue for more than 180 days.

This classification helps determine the level of risk and appropriate handling measures.

How long does overdue debt become bad debt?

According to the Credit Information Center (CIC) and the State Bank of Vietnam, if a loan is overdue for more than 10 days without payment, it will be classified as problematic debt. After 30 days, if not resolved, the risk of being classified as bad debt is very high. Once classified as bad debt, the information will be recorded on CIC, causing difficulties in future borrowing.

What overdue debt ratio is considered safe?

For banks, a safe overdue debt ratio is below 3%. For businesses, an overdue debt ratio above 5% is already a warning signal. Maintaining a low overdue debt ratio and resolving it promptly helps sustain credibility and capital mobilization capacity.

Average overdue debt interest rates in the market

Currently, overdue debt interest rates range from 150% to 200% of the interest rate stated in the loan contract. For example, with a loan interest rate of 10% per year, the overdue interest rate may reach 15 – 20% per year. This interest will continue to accumulate if the borrower fails to make payments.

Can overdue interest be reduced or waived?

Borrowers may be considered for overdue interest reduction if they:

• Encounter difficulties due to natural disasters or epidemics

• Can prove a significant decrease in income

• Voluntarily cooperate with banks to restructure debt

However, the final decision lies with the credit institution.

Banks’ procedures and regulations for handling overdue debt

According to the regulations of the State Bank of Vietnam, when a loan becomes overdue, credit institutions must classify the debt, make risk provisions and implement appropriate debt recovery measures. The handling of overdue debt must comply with principles of transparency, legality and protection of all parties’ rights.

Banks usually apply the following steps in handling overdue debt:

• Step 1 – Debt reminder and warning: Sending notices, making phone calls or sending SMS messages to remind customers of overdue debts, while informing them of the penalty interest being incurred.

• Step 2 – Negotiation and support: Banks assess the borrower’s repayment capacity and propose solutions such as restructuring repayment schedules, extending loan terms, freezing debt or reducing interest.

• Step 3 – Debt recovery: If no agreement is reached, banks apply stronger recovery measures such as automatic account deductions or seizure of collateral assets as stipulated in the contract.

• Step 4 – Litigation and collateral handling: If the borrower deliberately refuses to repay, the bank has the right to initiate legal action and request the disposal of collateral assets to recover the debt.

Note: This entire process must be carried out in compliance with legal regulations. Proactively communicating and working with the bank as soon as the debt becomes overdue helps identify the best solutions, avoid serious legal consequences and maintain a good credit history.

Optimal overdue debt valuation solutions from Dong Duong International Valuation

In the context of rising bad debt ratios, many businesses and banks are facing overdue debts that are difficult to recover. The overdue debt valuation service of Dong Duong International Valuation helps accurately assess the actual value of debts, supporting the optimization of debt handling and asset recovery processes.

Why is overdue debt valuation necessary?

• To determine the reasonable value of debts or collateral assets for:

  • Buying and selling or transferring bad debts

  • Handling collateral assets in accordance with legal procedures

  • Recording impairment losses in financial statements

• Enhancing transparency and objectivity in debt settlement

• Minimizing legal risks, especially during transfers or litigation

According to reports from the State Bank of Vietnam, total bad debt across the entire system in the first half of 2025 is approaching 3.8%, exceeding the warning threshold. Meanwhile, many businesses are still unable to assess the true value of collateral assets for resolution. Dong Duong International Valuation’s services have been successfully applied at many major banks and financial enterprises such as BIDV, Agribank and Vietcombank in cases involving overdue debts from 10 to 90 days.

Advantages of choosing Dong Duong International Valuation:

• 23 years of experience in financial valuation, bad debt and real estate

• A team of nationally certified valuers licensed by the Ministry of Finance

• Application of modern valuation technology with real-time market data updates

• Nationwide branch network, ensuring fast and effective services across all localities

With these advantages, we provide detailed valuation certificates compliant with State Bank regulations, helping optimize bad debt handling processes while ensuring transparency and efficiency.

>>> Don’t let overdue debt become a burden! Contact Dong Duong International Valuation today for accurate valuation and optimal handling solutions.

Indochina International Appraisal & Investment JSC (SunValue)

• Address: 15 Nguyen Luong Bang, Tan My Ward, Ho Chi Minh City

• Phone: 081 519 8877

• Email: contact@sunvalue.vn

• Facebook: Indochina International Appraisal And Investment J.S.C

• Website: inavn.vn

Conclusion

Handling overdue debt is not only a financial responsibility but also requires comprehensive, accurate and compliant solutions. The overdue debt valuation service from Dong Duong International Valuation provides a clear and well-founded basis to help you make fast and effective decisions in an increasingly complex financial environment.