The clause that takes back the discount
The promotional rate is a discount, and discounts are given on conditions. The condition is almost always that you keep the loan for a stated period. Break it, and a clause somewhere in the fee appendix requires you to return the interest that was discounted. It is separate from the early repayment fee, it is charged on top, and it is usually bigger.
What the clause says
The wording varies, but the mechanism does not. A representative form reads something like this:
In the event the Borrower repays the Loan in full before the expiry of [36] months from the date of first disbursement, the Borrower shall refund to the Bank the difference between interest calculated at the standard lending rate and interest actually charged at the preferential rate for the preferential period.
Three variables decide what it costs: the size of the discount, how long the discount ran for, and how big the balance was while it ran. All three are known at signing, so the number can be worked out before you commit to anything.
Working it out
The estimate is the sum, across every promotional month, of that month’s opening balance multiplied by the gap between the standard rate and the promotional rate, divided by twelve.
On the loan used throughout this site the promotional rate is 6.9% and the floating rate is 11.5%, so the gap is 4.6 percentage points, or 0.3833% a month. The promotion runs twelve months, over which the balance falls from 2,400,000,000 to 2,290,000,000 dong in 10,000,000 dong steps. The average balance is 2,345,000,000 dong, so:
| Input | Value |
|---|---|
| Rate gap | 11.5% − 6.9% = 4.6% a year |
| Sum of promotional-month balances | 28,140,000,000 |
| Monthly gap | 4.6 ÷ 12 ÷ 100 = 0.0038333 |
| Clawback | 107,870,000 |
For comparison, the early repayment fee on the same settlement in month twenty-four is 43,200,000 dong. The clause nobody reads is two and a half times the clause everybody reads.
The window is the thing to negotiate
The clawback applies for a stated number of months from drawdown, which in practice runs from twenty-four to sixty. Notice that this window is usually longer than the promotion itself. A twelve month promotion with a thirty-six month clawback window means that for two further years after the discount has ended you are still liable to repay it.
| Settlement month | Penalty | Clawback | Total on top of the balance | Effective rate over the life of the loan |
|---|---|---|---|---|
| 24 | 43,200,000 | 107,870,000 | 151,070,000 | 13.014% |
| 24, if the clause did not exist | 43,200,000 | — | 43,200,000 | 10.735% |
| 60, window closed at 36 | 9,000,000 | — | 9,000,000 | 11.033% |
One clause moves the effective rate of an early settlement by 2.28 percentage points. That is a larger effect than almost anything else a borrower can negotiate, and shortening the window from thirty-six months to twenty-four costs the bank nothing today.
Four variants to watch for
- Calculated on the original principal rather than the reducing balance. Rarer, and materially worse. On these figures it would produce roughly 110,400,000 dong instead of 107,870,000, and the gap widens sharply on longer promotions.
- Calculated against a “standard rate” that is not your floating rate. Some contracts define the comparison rate as the bank’s published standard lending rate for the product, which can be above base plus margin. Ask which number is used and what it is today.
- Triggered by partial repayment. Most clauses trigger only on full settlement. A few trigger pro rata on any early repayment, which makes overpaying expensive during the window.
- Triggered by refinancing away, but waived for refinancing within. Common and rarely mentioned. If the bank will waive it for an internal refinance, that changes the calculation in when refinancing works.
The practical consequence
A large promotional discount over a long promotional period, combined with a long clawback window, is a lock-in device rather than a gift. The more generous the promotion looks, the more the clawback will cost and the longer you are tied in. Two offers, one at 6.9% for twelve months with a thirty-six month window and one at 7.6% for twenty-four months with a twenty-four month window, are different products in ways that the headline rates hide completely.
Both the penalty and the clawback are inputs in the loan inspector, with the window length editable, so you can put your own clause in and see the settlement cost month by month. The exact arithmetic the tool uses is set out on the methodology page, and it is an estimate of the scale of the problem rather than a substitute for the wording in front of you: every bank drafts this clause differently and some of them draft it badly.