Consumer finance company

A finance company is a form of non-bank credit institution. A finance company uses its own capital, mobilized capital, and other capital sources to lend, invest, provide financial and monetary consulting services, and perform a number of other services as stipulated by law, but must not supply payment services or receive deposits for less than 1 year.

According to Decree No. 39/2014/ND-CP (supplemented in 2019), there are 4 types of finance company, of which a CONSUMER CREDIT FINANCE COMPANY mainly operates in the field of consumer credit. The main products of a consumer credit finance company are CONSUMER LOANS and INSTALLMENT LOANS.

Consumer loan is defined as a finance company extending a loan expressed in Vietnamese Dong to an individual customer in order to meet his/ her demand for funds for the purchase or use of goods or services for his/her personal or family purposes. The total outstanding balance of consumer credit owed by a customer to that finance company cannot be greater than VND 100,000,000 (this does not apply to an auto loan under which the auto is pledged as collateral for that loan in accordance with the law).

A demand for funds for the purchase or use of goods or services is comprised of:

Installment loan is defined as a consumer lending arrangement under which a finance company and a customer agree to repay the principal and interest in installments over a set period of time.

DIFFERENCE BETWEEN A CONSUMER CREDIT FINANCE COMPANY AND A BANK

Customers who need an installment loan can easily talk to representatives of consumer credit finance companies in electronics supermarkets. Many people think that this is a bank, but it’s not. So, what is the difference between a bank and a consumer credit finance company?

LOAN PRODUCTS

All commercial banks offer unsecured loans and secured loans. However, finance companies provide mainly unsecured loans.

FORMS OF UNSECURED LOANS

Banks usually only lend unsecured loans based on the borrower’s salary (the loan amount is usually equal to 3 - 6 months’ worth of salary). Finance companies, on the other hand, offer more diverse forms of loans, supporting many different types of customer.

LOAN INTEREST

Because of the “easier” verification of the borrower, loans at consumer finance companies often have higher interest rates than loans at banks. The consumer interest rate at finance companies must obtain approval from the State Bank.

¹³ Article 9 of Circular No. 43, amended and supplemented by Article 1.12 of Circular No. 18/2019/TT-NHNN

CUSTOMER SEGMENT

To order to meet the bank’s loan conditions, customers usually have to present a labor contract, a salary statement, and prove they have a stable income. Meanwhile, customers of financial institutions are more diverse, from workers to businessmen. In a nutshell, the main customers of finance companies are those who are “sub- standard” for bank credit.

LOAN LIMIT

Banks can lend a large amount, possibly up to hundreds of millions of Dong, if borrowers can prove their income. However, loans from finance companies are smaller, ranging from a few million to several tens of millions of Dong that banks cannot lend due to the high risk of bad debt that can compromise the system’s security as well as legal compliance requirements.

MAIN PRODUCTS OF CONSUMER CREDIT FINANCE COMPANIES

After nearly 15 years of officially operating in the Vietnamese market, consumer credit finance companies have thoroughly researched and analyzed market needs so they can offer financial products that banking institutions – for risk management and legal regulations – have not provided in a timely manner. The largest finance companies in Vietnam all provide similar services. Let's look at the products that Home Credit currently offer their customers.

LOANS TO BUY GOODS AND SERVICES IN INSTALLMENTS through partners of Home Credit, including electronic products, motorbikes, and other products and services.

CASH LOANS: Home Credit make direct disbursement to customers in cash or through the use of non-cash payment services as agreed in the consumer loan contract.

CREDIT CARD allows the cardholder to make card transactions within the credit limit granted under the agreement with Home Credit - the card issuer.

In addition, in order to better support customers with regard to risk management as well as reduce bad debts for finance companies themselves, Home Credit has added a customer repayment-related life insurance.

Home Credit is connected to more than 3,000 Payoo payment points and 4,000 MoMo payment points, and is linked with the post office system in Vietnam, the Viettel store system, and banks nationwide, making payment more convenient and easier than ever.

SERVICES OF A CONSUMER FINANCE COMPANY

A useful way of becoming a smart credit user is to use the services of consumer finance companies. A finance company will help you manage your finances and avoid frauds and scams. At the same time, by learning about emerging scams, you will obtain knowledge and awareness about the safe and effective use of credit.

Loan service

"THIS IS ONE OF THE PROMINENT ACTIVITIES OF CONSUMER FINANCE COMPANIES. LOANS INCLUDE INSTALLMENT LOANS AND CONSUMER LOANS."

Consumers can get a cash loan, phone or electronic appliance loans, motorbike loan, etc. There are many types of loans to choose from based on your existing financial situation, including installment loans, short-term, medium-term and long-term loans. In fact, the use of loan services from finance companies has become common as it is a way from someone to buy an item they want even if they don't have enough money, then pay the balance over a period of time.

Tuan could consider this kind of loan service to buy a motorbike for work. There are two options for Tuan. First, he could save until he has enough money to buy a motorbike. However, this option is not very effective because it will take a long time and during that time, he will spend money on traveling. Plus, while he is without a motorbike, Tuan will have difficulty going to meet customers. The second option may be worth considering: Tuan could use a loan service from a consumer finance company, with periodic installments (weekly/quarterly/ monthly) at a reasonable interest rate. Then Tuan would have a new motorbike for work instead of waiting until he has saved enough money. He would only need to deduct a periodical expense for the installment payment to the finance company. Paying off the loan would mean that he completely owns the motorbike.

Issuing a credit card

"A CREDIT CARD IS ISSUED BY THE BANKS OR FINANCE COMPANIES. CREDIT CARDS OFFER FAST AND CONVENIENT ACCESS TO SHORT-TERM LOANS."

You can borrow up to a set amount (your credit line) and repay the loan at your own pace – as long as you repay the minimum amount due. You will also be charged interest and may incur other fees such as a late repayment penalty. The money you repay to your credit card will immediately be available to use again for a new “loan”. VISA, MasterCard, American Express, and Discover are the most widely recognized credit cards in the world.

In the previous analysis, Tuan and Mai spent a significant portion of their income on spending and shopping. However, for high-value items, neither Tuan nor Mai have the available funds. In addition, if urgent expenses were to arise from events such as accidents or illnesses, they would both have difficulty in paying at once since they cannot handle a large amount. Therefore, credit cards could be used as a timely rescue method. For example, Tuan and Mai could use their Mastercard to pay urgent expenses. The credit system would then inform Tuan and Mai of the repayment deadline, with a reasonable interest rate instead of a “high interest rate”.

In order to meet the needs of consumers for financial services and minimize financial fraud or “black credit”, consumer finance companies have launched consumer finance products and services in a safe, convenient, and effective manner for customers. As a result, you can find a useful method for managing your finances and consumption. Therefore, arm yourself with financial knowledge and choose reputable consumer financial services and companies to support your work and future spending.