Home Bank Loans In Thailand

[happyjune]

I am trying to understand Thai bank loan system better. The idea of putting a Chanote with a biz which is located on the land into the bank as security.

I am sure this is a language problem, but by the looks of it, the terms of the loan sound ridiculous.

1. Interest is worked out on the original loan amount and the same interest is payable each year.

Back in my homeland, eg, 100,000b loan at 10% the first year has 10k in interest plus paying some principle back, lets say 20k of principle, = total repayment year 1 of 30k.

The second year, the interest would be 10% of the remaining 80k principle remaining, so 8k interest and 22k off the principle so there would be some 58k left to pay off at the end of the second year. (OK, I understand, it's not worked out only once a year, but just trying to make this question simple).

In Thailand it appears that you keep paying 10k interest every year, even when the loan is down to less that 10 grand to pay back. Surely this is ridiculous and a mistake int he translation.

Secondly, there is no incentive to pay it out early. You still have to pay all the interest for the initial term of the loan, delibratly drawn out over many years.

Can you comment on this please, I amuse I understand wrong, but Amazing Thailand still amazes me.

[nong38]

Yes well they do things differently here so it should not be a surprise. I heard of a loan for 100 days at 100bts a day. With 30 days left, the money was found to pay off the remainder , 3000 bts, so we think we will get a discount, but you dont its 3000bts and finish. Do not apply western ideas to Thailand.

[asiawatcher]

It depends how you structure your loan and which bank you use. UOB, SCB etc are all a bit backwards in terminology of Western Banking but they do understand fees!

Banks here are reticent to handle interest only loans with principle reduction. If you undertake to pay 10% pa. on a principle then even if you do principle reduction you do not necessarily get a rebate unless... you structure the loan to include ability for principle reduction. Rule of 78 rebates and anticipation rebates are not even known in this country but you can set it up as an overdraft (OD) which allows principle reduction at any time and an overdraft even at 15% p.a. on outstanding balances is cheaper than 6% principle and interest payments p.a. Do the maths on the deal. Here they figure like Bangkok Hotel guests - you rent it and agree to pay the amount - you leave early - too bad for you!

Set up the loan as an OD at whatever rate they want. Interest is calculated on the outstanding daily balance monthly in arrears. If you bank your entire income into the OD account then chances are, in highs and lows, annually you are able to do principle reductions, you will screw the bank and end up paying less than 3% p.a. using their own system against themselves. This is often taught by financial planners but that is another story. There are other tricks such as using the interest free time frame on credit cards and having a periodical deduction authority (PDA) to pay off the entire card at the 45th day which essentially gives you another 8 weeks interest free. This method would allow you to pay out a 30 year housing mortgage in less than 5 years. Banks hate anyone knowing this. Bangkok Bank does this - internationally they call it a "split mortgage" but here - no idea! The security is the same - it's just how you negotiate the facility and documentation.

Good luck

[haveaniceday]

Out of interest, SCB, UOB don't offer calculators for their loans, Bangkok Bank Does, link below.

What I find bizar is that the Bk Bank calculator says the same repayments, to the decimal point to that of my western bank for repayments, of the same rate, amount and term that is a principle and interest, normal western loan calculator. I wonder if the Bangkok Bank website designers just used a available website widgit 'behind the scenes' and it doesn't show the real repayments.

http://www.bangkokbank.com/Bangkok%20Bank/Web%20Services/Calculators/Pages/Loan%20Calculator.aspx

[nong38]

Some detailed and interesting replies, All sounds ok until translating from Thai to English happens and what you think is happening suddenly is not, I know a lot of Thais who sometimes dont pick up all you say and rather than ask again they say yes, because thats what you want to hear. I would advise you to be cautious, very cautious. If you know someone who has a total command of both Thai and English take them with you and if they know about Thai banking that would be helpful. Good luck.