Compare the pros and cons loans in the system vs the informal system.

With a weak economy or with some financial necessity causing you to have a need to borrow up.

By borrowing money, there are both loans in the system and informal loans. And formal and informal loans have advantages and disadvantages. What are the advantages and disadvantages? Where should it be recovered? Find the answer in this article.

Formal loans are loans through financial institutions. Whether it is to borrow money at the bank by yourself, using money from credit cards requesting a home loan and car loans. Which the debt in this way the law will guarantee that the loan is borrowed. The interest rate is set according to the law. And if the borrower breaks the contract or refusing to pay installments as required by law naturally being prosecuted in civil cases.

An informal loan is a loan that has the opposite characteristics of all formal loans. That is to say, a loan that is not certified by law. Has the characteristics of borrowing money orally or recording can be promised as evidence. Examples of informal loans, such as urgent money, posted on fences, on electric poles, or word of mouth or is a loan among the acquaintances including various internet media that does not have legal certification.


When knowing both types of loans, let's look at the pros and cons of both types of loans.


Formal debt

Informal debt


Bank or a financial institution under the supervision of the Bank of Thailand

The general public (the creditor) or illegal business

Protection law

Have legal protection

Without protection law

Interest rates and fees

Clearly inform the interest rates and various fees up to 28% per year

There is no clear interest rate and fee. Depends on the creditors determined (Which is a very high rate) and usually charged at a high rate per month


If having collateral or have good financial credit, easier to borrow. However, if there is no financial credit at all May not recover and must prepare the loan support documents as specified by the financial institution Which may take longer to approve loans

There are easier steps to ask for a loan. More concise, quicker money. Sometimes walking into the source of the loan with ID card only Then can request to borrow and receive money immediately

Debt settlement

Able to negotiate for debt compromise

Unable to compromise debt If in default payment Some may be harmful to the life and property of the borrower.

Security of customer information

Customer data is kept confidential as required by law.

Systematic treatment of debtors' personal information

Contract conditions

There is a clear and fair contract. There are clear interest rates and expenses when repaying debt. The financial institution has issued clear evidence of payment to the debtor as evidence.

The terms of the contract with the debtor depend on the creditors. Sometimes there are no loan agreements. No proof of payment was issued. Causing not being able to check how much the debt has been paid Disadvantage debtors

If necessary, to create the debt or debt recovery in the system will enable us to be fair, because of laws protecting. Also, get cheaper interest rates on loans and safe (both life and property) more than informal debt. However, if accidentally in debt already outside the system, consider debt restructuring to get into the system would be better. Which you can ask for advice from the bank. Currently, many banks have a way to help people out of debt continuously. Ask the bank to see what they can help with, such as requesting a personal loan. Or requesting a loan with collateral in order to take the lump sum earned to close the informal debt.

Importantly, do not forget to change financial behavior and hurry to plan your finances as soon as possible. In order to create immunity, not letting us go back into debt again

Nipapun Poonsateansup

CFP® Dependent Financial Planner