Consumer loans 'flood' the countryside

Many young people in the provinces are using smartphones worth more than ten million dong for the first time in their lives thanks to the "invasion" of consumer finance companies.

For the past few months, flyers with content like "fast cash loans", "loans without collateral", "0% interest installment loans"... have started to appear more densely on the walls along the town's streets, next to the dealership stores. Inside the stores, busy electronics centers also have many posters with advertisements for interest-free installment purchases.

In fact, this form of lending is gradually becoming known to many people in the provinces. Along with electronics and mobile phone stores, most of the names in the consumer finance sector such as FE Credit, Home Credit, HD Saison, JACCS, Prudential... have expanded their networks to the provinces and even penetrated into small communes instead of just in the central town.

This shows that consumer finance companies are aiming to exploit the untapped market in rural areas, instead of competing for customers in urban areas and industrial clusters - which is already very fierce.

Consumer finance companies compete fiercely at each retail point in the provinces.

In the past, most people only knew how to borrow money from relatives, play with them, and at most, go to a pawn shop. Those who did well in business and had many connections could borrow from people's credit funds. The rest, very few people dared to ask for loans from banks or any other credit institutions.

Rural areas - where 60% of Vietnam's population still lives, therefore, according to many experts, have great potential for consumer lending. Ms. Nguyen Thuy Duong - Deputy General Director in charge of financial services of EY Vietnam said that the goal of expanding the market and reaching many new customers of consumer finance companies will be difficult to achieve in the current competitive context. Therefore, targeting rural areas can be a new direction, helping financial companies to solve the bottleneck in their long-term development strategy.

According to expert Truong Thanh Duc, this strategy is also reasonable from the perspective of solving the problem of "black" credit that is breaking out in the countryside. According to him, although the consumer loan interest rate of finance companies is higher than that of banks, it is lower and less risky than black credit.

"If this legal lending can develop, it will meet social needs and limit illegal credit," he said.

It is easy to buy motorbikes and phones by installment payment, however, many people are having trouble paying off their debts due to lack of calculation and financial management skills.

One is that they do not carefully read the contract, which clearly states that the interest rate for cash loans or installment loans from financial companies is quite high, usually from 20% to 50% per year. Two is that many young people in rural areas borrow money but use it for spending purposes, not for purchasing equipment or doing business.

Therefore, Lawyer Truong Thanh Duc noted that when signing a contract, borrowers should carefully study the interest rate. Consumer loans are allowed to negotiate loan interest rates with each different customer profile, depending largely on the customer's credit history. Therefore, customers should exercise their right to negotiate interest rates.

In fact, despite consciously lowering interest rates to the lowest possible level to attract borrowers, consumer finance companies still have to maintain high interest rates to cover operating costs and maintain profits.

However, according to legal experts, they still need to advise borrowers fully and honestly about loan information, loan interest rates, interest calculation methods, interest calculation periods when signing credit contracts, and even detail the costs of early repayment and penalties when parties violate the contract.

On the side of consumer loan customers, it is also necessary to improve their understanding of basic knowledge such as financial services in general, consumer loans in particular. Before signing the loan application and loan contract, customers should clearly understand each term, as well as the binding conditions set by the lender.

According to VNE