Customers apply for loans at Tien Phong Commercial Bank in Ha Noi. — VNS Photo Truong Vi

by Ngoc Bich

HA NOI (Biz Hub) — Consumers have been urged to think twice before using borrowing for consumption from commercial banks and financial companies as they rush to prepare for Tet (Lunar New Year Festival).

This message is delivered by the Ministry of Industry and Trade's Competition Authority as disputes over this type of service was one of the issues most received by the authority last year.

The service is to provide loans to individuals and households to buy goods such as home appliances, vehicles and houses mainly under the pay-by-installment method without collateral.

The authority had been receiving complaints about the service since the beginning of 2015, Cao Xuan Quang, director of the authority's Consumer Protection Division said yesterday.

So far, the number of complaints has totaled 91, of which 19 cases have become complicated issues, he added.

The disputes often stem from the difference between interest rates that consumers were offered before signing contracts and the rates that they actually had to pay, Quang said.

He noted that in fact, most of the cases were partly due to consumers' carelessness and lack of knowledge about this type of credit. They were often attracted by the easy lending procedure and collateral-free characteristic of the service so they did not check the contracts thoroughly, he said.

A customer who was looking for a new motorbike in a shop on Tran Quang Khai Street said that she saw a leaflet advertising the pay-by-installment service offered by a bank. She said the interest rate on the leaflet was written "nearly 1.5 per cent," but without "per year" or "per month," making her confused.

If it was quoted on yearly basis, it was impossible because the bank would have no profit, but if it was on monthly basis, the rate was quite high for low-income people, she said.

"I don't mind paying the interest if I choose the service as the rate is acceptable, but at least the rate must be clearly stated. Otherwise, people who have low income and little knowledge about finance would be confused."

Nguyen Thi Kim Thanh, former director of the Banking Strategy Institute under the State Bank of Viet Nam, commercial banks are trying to raise outstanding loans aimed at individuals to boost their overall credit growth and offset the slowdown of enterprise lending services.

Many banks and financial companies are launching promotion campaigns during Tet to stimulate consumption.

Nguyen Tuan Linh, director of the Military Bank's Le Trong Tan Branch, said that this was a favourable time for banks and financial companies to encourage people to borrow as their demand often increases strongly before the Lunar New Year festival. Thanh said people should consider their ability to pay before borrowing and buying because the interest rates for the loans were normally high.

People should not complain about the interest rates, she said, adding that they must be high as loans for consumption were often small in value and free of collateral, and obviously became very risky for lenders. People should be aware that riskier assets must come with higher returns, she stressed.

Chau Dinh Linh, a lecturer at the Banking University of HCM City, said that middle-income individuals and people aged from 23 to 35 were potential customers of the banks and companies. This group had more incentives to consume but limited financial resources, he explained.

But if they did not manage their budgets well and could not control their needs, they would easily fall into the trap of debt, Linh warned.

The interest rates for the loans could rise up to 85 per cent per year, but the loans were often divided into small amounts, so consumers hardly recognise it, he said.

Therefore, consumers should learn to protect themselves, he added.

Thanh agreed, saying that because more and more credit services were offered in the financial market, consumers should also improve their knowledge to assess them properly and to choose the right services for themselves. — VNS