“Informal debt” is scarier than you thought.

“Quick cash, easy loan, no credit bureau checking, no documents need, call 08X-XXXXXXXX”. This is another easy cash loan and easy death! A bad economy and no cash tricks many people from stepping into this informal debt. Although they know how scary it is, they still fall into this trap. It makes them broke and their families, and their surrounding people. Data from the Legal Aid Center for Debtors and Victims of Injustice, Department of Special Investigation shows that there are many complaints regarding informal debt. Complaints via tel. 4444 to the Office of the Prime Minister are 4,748 cases with the highest number from the center part, 1,926 cases and 663 cases are from Bangkok. 766 cases from the Northeastern part, 516 cases from the North, 449 cases from the Southern part, 414 cases from the East, and 677 cases from the unknown. Let's talk about the scary story of informal debt so that you will not be fooled into seeing that it's easy to get money because, in the end, you might become a slave and fear a brutal debt collection.
 

High-interest rate
 

Think about what is said that an interest rate was only 20% per month, the daily debt seemed to be able to pay off. A few hundred baht per day but think carefully! The interest is 240% per year, overtaking the principal 3-4 times! Such a high interest and the debt cannot be paid off. Many people have to go to borrow money more to pay only interest. Slave for a lifetime. Let's compare the interest of the debt in the system and the debt of the informal system, assuming a loan of 10,000 baht.


Debt in a system with an interest rate of 1.75% per month and 12 months pay-off. The overall payment is 12,100 including 2,100 Baht of interest. 


Debt in the informal system with an interest rate of 20% per month and 12 months’ pay-off. The overall payment is 34,000 including 24,000 Baht of interest. 

Floating interest 
 

Floating interest cases can occur if the debtor is unable to pay the full amount at the same time and only interest can be paid. As a result, the total amount of money to be paid will be compounded into both the capital and the interest until the debt balance rises. The financial burden will be increased and when added to the former then the result will be from a few thousand-baht loans that may float to tens of thousands or hundreds of thousands when the debtor is unable to repay the debt.


No clearly contract detail


Informal loan contracts are not verifiable and rarely have a clear timeline. So, the borrower cannot negotiate with creditors as well and the borrower will not be protected by law. While the loan in the system, although it takes more documents and procedures (which at present, the loan process in the system is much easier and faster), is more reliable and can build confidence in repayment to the borrower.

May be involved in illegal activities
 

There is no way of knowing where the people who lend us money get money come from for a loan outside the system. It may come from doing various illegal businesses which if involved in these illegal things, it may be difficult for the police or government officials to help the debtor in a timely manner. Also, finding out about the informal loan network immediately is not easy.


The lender is the one who controls the game.
 

People who give out loans know that informal borrowers are often in a situation where they have nothing to lose and will do whatever it takes to get the loan in time. This causes many scams that tell the terms of the loan in ambiguous terms or confusing the borrower. Finally, the borrowers cannot know how much they currently owe because the lender is the only person who can interpret the agreement which makes the borrower become just a chicken in their hands.

A brutal debt collection 

In the event of a debtor miss a payment, there is often intimidation, harassment, or embarrassment. In many cases, there was even physical harm and try to destroy property or even attack their family or close people.


Moreover, data from the debtor assistance center and people who have not been treated fairly, the Department of Special Investigation states that there are currently 3 types of scams from informal debt gangs:


1. Helmet Gang:
A daily loan without a contract that may confiscate a credit card, ID card, or confiscate the card of the guarantor. Most of them are lending to merchants in the market. These gangs are spread in all provinces across the country where many gangs have funding from the same large capital. There are two methods of horrifying scams of the helmet gang

  • Thinking of “floating interest"; For example, a loan of 50,000 baht is charged at 10% interest per month, which is 5,000 baht per month, the debtor will continue to pay interest at 5,000 baht per month until the debtor has reached the total amount of 50,000 baht to repay which very difficult.  As a result, the debtor cannot get out of debt and have to deliver money to creditors many times more than the principal borrowed or have to borrow new debts to pay the old debt, most of which are borrowing in a larger amount.
  • “Falling sending money for 24 days”; For example, a loan of 10,000 baht, charged at an interest of 2,000 baht, total in 12,000-baht, installment plan of 24 days which is 500 baht per day. The creditor will cancel all sent money and it becomes zero. Also known as "falling" and the debtors have to restart a new installment. This makes many debtors can't get out of debt.
     

2. A group of capitalists who make an advantageous contract: Most of the debtors are farmers with the land. Previously, the most popular form of sale was consignment by making a short-term redemption contract then the debtor cannot find the money to redeem the money back in time. So, the land, which is worth several times more than the amount borrowed, goes to the creditor. But after the government had a major crackdown in 2018, along with the issuance of the “Agriculture Land Sale Act" which has many rules. As a result, the contract of sale of deposit to seize the land of the debtor has decreased. However, the worry is that creditors are currently using scams to get the debtors into new contracts by allowing the debtor to “transfer the land” to the creditor before receiving the money. When the payment is fully paid, the land will be returned (by contract to buy and sell). What the debtor does not know is that the “ownership” of the land has completely changed to the creditor from the date the debtor transfers the land in exchange for a loan. Also, the land price is worth many times the amount borrowed. Debtors are often defrauded. Then by the time of redemption, the creditor will avoid receiving payment. For example, when the debtor comes to pay the last installment, the creditor will not be found by claiming that he is not at home.

3. Online Loans which the target group will be online sellers, employees, and student groups. For "Online Seller Group", it will be a “sharing group” loan, where the loan gang will check the history of online sellers and people who will join the sharing group whether they have the power to repay the debt and have Is the source clear or not. Then they will make friends through chat and when they get acquainted, they invite them to form a sharing group loan. The loan gang acts as a " group owner". The method is as same as playing common shares but if any child-shares have no money to pay then the owner will persuade another group to join another band to "Pia" to the first band.

This causes the debtor to own more debt. Importantly, the owner will act as an “Informal loan source”. If the child-shares are unable to pay, they can borrow money from the group owner. If the debtor cannot repay on the due date, they will post a curse on the Facebook page or call their lover and friends of debtors that are on Facebook causing the debtor to hurry to pay the debt because of fear of being condemned. The reason why creditors are not afraid of debtors shutting down their Facebook is that the behavioral analysis of social media users, it shows that online merchant debtors do not want to lose their customer base on Facebook, while other debtors who use the old Facebook are accustomed to using it and do not want to add new friends.


Informal debt is both scary and dangerous. Apart from being exploited and losing money, you may lose your house, your land, or your reputation, get hurt, or even risk your life. You should not get involved but if you have any financial problem, a loan in the system with banks like SCB has a variety of options to help customers get through the financial crisis. The personal credit, Speedy Loan, with a maximum loan limit of 3 million Baht, plus installments up to 72 months without the need for securities or collateral. Quick approval, fast money, plus easy to register which is online via mobile phone. There are also My Home My Cash loans and My Car My Cash loans that takes your home or car as collateral for your loan, but you still own the house and the car. The preliminary approval results take time within 1 business day. Any information is needed about finding a loan that is right for you, call 02-7777777.

 

References

https://www.ncb.co.th/

https://www.moneyguru.co.th

https://www.gobear.com/th/blog/personal-loan/4-reasons-to-avoid-informal-debts

https://mgronline.com/specialscoop/detail/9620000116089