Within the context of Champasak Province, loan agreements between private individuals and commercial institutions serve as a cornerstone for maintaining local economic liquidity. However, the legal repercussions associated with defaulting on these obligations present persistent challenges within the developing judicial landscape of the Lao PDR. Given the implementation of the 2018 Civil Code, there is a critical need to evaluate how these defaults influence the stability of the financial sector and the legal rights of the parties involved. This study aims to examine the legal validity of loan agreements with performance guarantees, analyze the specific consequences of non-performance (default) between individuals and banks, and propose effective solutions for addressing contract violations. The research utilizes a qualitative documentary design, integrating doctrinal legal analysis of primary sources—including the Civil Code and Bank of the Lao PDR regulations—with in-depth interviews. For this study, a purposive sampling method was utilized to select 20 interview participants, ensuring a diverse range of professional and personal perspectives. This cohort is comprised of five judges from the Champasak Provincial People's Court’s Commercial Court Division and two representatives from the legal department of the Bank of the Lao PDR's regional branch. Additionally, the group includes three commercial banks. employees, three legal practitioners, and seven individuals with firsthand experience as bank borrowers. Findings indicate that while loan contracts are legally enforceable, defaults trigger severe consequences, including high interest penalties and collateral liquidation. A significant gap exists in the borrower's understanding of Article 431 regarding interest and penalties, often leading to protracted legal disputes that strain the local banking system. Strengthening public legal awareness and standardizing the enforcement of default penalties are essential for maintaining financial stability and ensuring equitable treatment for borrowers in Champasak Province.