What are Express Loans in Vietnam?
Lending is a profitable business, especially if you can lend at a solid interest rate and ensure a high percentage of loan repayment. Previously, to apply for a loan, it was necessary to visit the lender’s office or a bank branch, now, with small amounts, you can apply for express loans without leaving your home. For example, now you can go to
VayTienMat24, a website aggregator of credit products from different companies and banks, and familiarize yourself with all the terms and conditions of loans.
With a population of nearly 100 million people, Vietnam has a huge demand for express loans. If Vietnamese citizens urgently need money to repair cars, and houses, and pay for medical services, they can use them. To do this, just use the appropriate mobile application or go to the website of the credit company.
Do you know the
driving force of Vietnam’s express loan market is the rise in demands in the business sector, ease of loan terms for customers and businesses, digitization & attractive marketing strategies?
These are also actively used by small businesses. Small businesses are prevalent in Vietnam, from street food vendors to grocery stores run by housewives. Usually, they are not qualified for loans from traditional banking systems, which require people to prove that they have the sources of income to repay their debts by submitting all sorts of paper works.
Express Loans vs. Bank Loans
Of course, when in need of cash, people prefer seeking help from their circle of relatives and friends. However, relatives and friends cannot always lend the required amount of money, and that’s when express loans come to the rescue.
Small business owners in case of urgent need for money often have no other choice but to use them. The fact is that they mostly receive cash from their customers and not by bank transfer. Therefore, it is difficult for them to justify their sources of income and get funds from banks.
Also, they regularly hire people to work for them without proper labor contracts and pay cash to avoid making contributions to compulsory social insurance and paying income taxes. Consequently, the people who work for them are not qualified for funds from traditional banks either.
Types of Express Loans
What types of express loans allow you to borrow money without the required creditworthiness mentioned above? Traditionally, those people turn to tontine schemes (“hụi” in Vietnamese); loan sharks, or local pawn shops to get cash quickly. These types of loans are very popular in Vietnam, given that most of the population is not able to access the regulated source of funds. People can get funds from tontine schemes, loan sharks, or local pawn shops with only their national identity cards, or sometimes even without anything other than their own names or reputation, and home addresses.
“Hụi” is an interesting form of microfinancing popular among housewives. In each round of “hụi”, members of the tontine scheme contribute the same amount of money to the common pool, which is later received by one of the members as a whole. The same process is repeated after an agreed period until all the members have already collected money from the pool once. Interest may be applied or not, depending on the agreement amount of the tontine scheme members.
This can be viewed as a form of short-term loan that is convenient to get. However, involves high risk because there are many cases where one of the members runs away with all the money they receive and never pays back. Given the popularity of “hụi”, the local authorities have put in place regulations to control this type of lending & borrowing activities. However, there is still a lack of enforcement measures.
Borrowing from loan sharks means the borrowers need to pay extremely high-interest rates, which is to cover the significant risk that the loan sharks face when lending money to people without creditworthiness. Interest rates can be as high as 1% per day, making many borrowers end up in a situation where they can never repay their debts. The government only allows people to apply the maximum interest rate of 20% annually when lending money. Therefore, this type of express loan is often illegal and involves a lot of risks to the borrowers.
Along with the across-the-board of the internet and globalization, Vietnamese have access to many new forms of such funds nowadays. In the past few years, there have been a lot of personal financing companies starting their operations in Vietnam such as Home Credit, Easy Credit, FE Credit, Mirae Credit, etc. People can quickly obtain personal loans from these companies through online processes which require them to input personal information such as phone numbers, home addresses, jobs, office addresses, etc., and share national identity card photos.
When people have valuable items that can be used as a mortgage such as motorbikes, laptops, jewelry, etc., and only need quick cash for a short period of time, pawn shops are a good choice. They might also accept national identity cards as a form of security. Pawn shops in Vietnam operate almost the same as elsewhere in the world, thus this form of express loan will not be discussed in detail.
Benefits of Express Loans Online
Besides pawn shops operated by local people, there are new chains of pawn shops operated by international companies or invested in by big investment funds. The most popular among them is F88, which has been invested in by Mekong Capital, one of the biggest private equity firms in the country.
Despite being a registered company with investment from Mekong Capital, F88 is recently investigated by Vietnam police due to several regulation violations. Such as having contract terms that are not transparent, and applying lending interest rates exceeding the maximum lending rate allowed by the government.
Loan sharks also operate online nowadays by setting up thousands of lending websites that people can easily search for on Google. Many of them are even operated by foreigners based overseas with the support of local people. Although, the lending process has moved online and repayments must be made through designated bank accounts.
Pros of online loans: It can be disbursed into the borrowers’ bank accounts within just an hour. You do not need to provide proof of income.
Because of the quick and relaxing screening processes, these companies experience extremely high-interest rates.
In conclusion, there are many types of express loans in Vietnam. They provide convenient financing options besides the traditional banking system. However, it also comes with negative aspects that people should be aware of when deciding whether to take express funds to meet their need for cash.