Bizzare Thai Loans Rules

[Chao Lao Beach]

I have been trying to help a Thai friend to clean up loans and consolidate, but what he is saying is bizarre and from what I have been reading here in a search, is kind of confirmed, can you please help me understand this part of the Thai banking system re loans. The main issue is a home loan.

I will trying to give an example in 'round hypothetical' numbers as well.

1. It appears that if you take a home loan out for 30 years and you have a windfall and wish to pay more off, there is no benefit as the loan repayments are fixed and you still pay what you would have otherwise.

Result being there is no benefit in paying out the loan early and effectively consolidate a loan or just get rid of it if you can now afford to.

2. It appears that as you slowly reduce the principle, your repayments are the same, as in interest is calculated on the original amount, not the new reducing principle. (Note, in Australia the repayments often stay the same but as time goes on, a higher percentage is principle, not interest)

It was mentioned that SCB and BK Bank may let you pay it out early like in a western loan and these are the only banks that will but this is not their standard loan, you have to arrange it. Does any one know. Any comments ?

I am also curious for my self, just look at the provincial fees, this seems bizarre but may be true.

Edited June 4, 2014 by Chao Lao Beach

[LivinLOS]

My understanding is early payment terms depend on the loan but in many cases yes, the lender still expects the full interest they would have over the entire term of the loan to be paid, hence zero advantage (in fact a loss of the time value of money so disadvantage) to paying them down.

[Chao Lao Beach]

What happens if he was to sell the house that is now no longer affordable, (neither are all the other loans really).

This effectively means stopping the home loan early, to me this is the most practical thing actually. He thinks that he still has to pay out what would have been the entire loan that is just rediciouls and totally in-practical. He said this is why so many people in Thailand just walk away from loans and then let the banks clean up the mess with foreclosures.

Surely if you sold your house 6 years into a 30 year loan, the may a little fee or what ever, the bank gets first dibs on the sale of the principle that you originally borrowed, but surely it is nuts to say that you owe the bank 24 years of interest you would have paid.

Sounds fishy to me.

[LivinLOS]

I dont borrow money, so no idea how it works on home loans.. I have been told however that auto loans and many other loans work this way..

You borrow and have to pay back the amount plus interest.. You want to pay it off early then fine, but thats the amount you have to pay.

[CaptHaddock]

What happens if he was to sell the house that is now no longer affordable, (neither are all the other loans really).

This effectively means stopping the home loan early, to me this is the most practical thing actually. He thinks that he still has to pay out what would have been the entire loan that is just rediciouls and totally in-practical. He said this is why so many people in Thailand just walk away from loans and then let the banks clean up the mess with foreclosures.

Surely if you sold your house 6 years into a 30 year loan, the may a little fee or what ever, the bank gets first dibs on the sale of the principle that you originally borrowed, but surely it is nuts to say that you owe the bank 24 years of interest you would have paid.

Sounds fishy to me.

If the borrower walks away and the lender forecloses, the borrower would still be on the hook for any portion of the principal or interest due that is not satisfied by sale of the property under foreclosure.

[fletchsmile]

Possibly true and you would have to look at the original loan agreement. There may have been special promotions or may be penalties for early redemptions. That sort of structure is more common on purchase of vehicles.

However certainly not the norm in today's Thai mortgage market.

My mortgage I could and did pay off early similar to Australia.

Cheers

Fletch

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[LivinLOS]

I cant see it logically working with home loans tho.. As it would imply that on each sale of the house the house must appreciate by house price value plus entire interest payment over term..

[CharlieH]

They do exactly the same with car finance, all added upfront, nothing for early payment/clearance of the debt.

No incentive whatsoever.

[samran]

Pretty sure people refinance if they get a windfall and want to pay more.

[LivinLOS]

Pretty sure people refinance if they get a windfall and want to pay more.

It pretty much has to be the case with houses..

However I remember being interested in a car and not being interested in financing it, when trying to establish what it would cost to actually buy the damn thing it was almost the new price, because the car plus its entire multi year interest payments, had to be made in full.

[Pralaad]

Car loans if paid out earlier one gets a discount .

Depending on how far through one is the discount ranges from 50% up for interest

[fletchsmile]

They do exactly the same with car finance, all added upfront, nothing for early payment/clearance of the debt.

No incentive whatsoever.

As posted above mortgages are not normally treated this way, and mine certainly wasn't.

As you note though car finance often is done this way.

Hence I'd say there's a good chance that OP's Thai friend doesn't understand the agreement or is getting mixed up

Cheers

Fletch

[hansnl]

My understanding is early payment terms depend on the loan but in many cases yes, the lender still expects the full interest they would have over the entire term of the loan to be paid, hence zero advantage (in fact a loss of the time value of money so disadvantage) to paying them down.

The system is called annuiity.

Which means you always pay the same amount, every month, while the interest part of the payment shrinks, the repayment part gets bigger.and the amount to repay shrinks.

Normally you can not pay extra in the first three years, but after that you can repay extra.

The amount per month you pay does not get smaller, but the interest part gets shrinks extra and the amount to repay gets smaller.

Which means the loan will be repayed earlier, and the bank earns less.

[CWMcMurray]

Agree with others ... Have mortgage here and only stipulation by bank is can not pay off early within first 3 years

After that, can make payments on the principle or refinance to save on interest. Original loan was with Siam City, which was bought out by Thanachat a few years ago ... But understand most home loans are structured the same by other banks as well

Car loans are different matter... Not much / if any reduction or benefit for paying off early

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[meatboy]

my wife watches live auctions of properties on the net,she tells me if you bid to buy a property and there is a default against it you have to pay that aswell.as for early payment when she left Thailand she promised to pay for her brothers bike [hp] 3yrs.left, she had to pay full amount plus an administration fee.when there's any thing to do with finance in Thailand there's only one way they know,you pay,pay pay [no pay],fine fine fine.

[kurnell]

I have a load with UOB and I can pay of the principal at any time

[AnotherOneAmerican]

@OP

Easy to repay home loan early, in Thailand.

It's car/bike loans that want the full amount (fixed rate, fixed term loans)+

Have you talked to the bank yourself?

Sounds like friend scamming you for money.

Edited June 5, 2014 by AnotherOneAmerican

[Travelman868]

What happens if he was to sell the house that is now no longer affordable, (neither are all the other loans really).

This effectively means stopping the home loan early, to me this is the most practical thing actually. He thinks that he still has to pay out what would have been the entire loan that is just rediciouls and totally in-practical. He said this is why so many people in Thailand just walk away from loans and then let the banks clean up the mess with foreclosures.

Surely if you sold your house 6 years into a 30 year loan, the may a little fee or what ever, the bank gets first dibs on the sale of the principle that you originally borrowed, but surely it is nuts to say that you owe the bank 24 years of interest you would have paid.

Sounds fishy to me.

Most loans in Thailand have all the interest added at the outset and will not give a rebate if paid off early. Thai's are not particularly good at repaying loans, this is

why the loan sharks shoot some defaulters as an example.

As for the friend I would not pay off the debts. Why!!!! because you will be dumped as soon as the debts are paid

[razer]

I can't help it ... not relevant ... but wouldn't it be nice if we could get loans based on the EU model. Loans are very large and if we can't pay, our brothers and sisters in the union will pay for us.

[Nuddy]

I have heard my Thai friends and family talk about the idea the Bank does not want the housing loan repaid early.

However being a retired Banker I thought I would try to sort this out. I went to the Bank and to the Borrower and listened to other family members.

Apparently, there are loan conditions that say you have to payout the full interest but there are also conditions where you can repay early.

Again apparently, because it was so confusing talking to the Banker and the Borrower, that you can give notice of early repayment.

This clause is buried in the fine print and really u need a lawyer to sort it out.

What happens if you sell the home and of course need to repay and even re-borrow, well again you need a lawyer to sort it out.

My experience in the North East of Thailand has proved to me that most of the Bank Officers working here have no idea of how it works and will say any damn thing to get u away from the counter.

My suggestion is to try and find a lawyer to look at the issue.

Yep I know how do u find a lawyer.

Good luck.

[Mudcrab]

i sell you a car for 1,000,000 baht., Interest rate is 10%. Loan is 10 years. Total repayment is 2,000,000 baht. What is so hard to understand.

I said i would give you a car., You said you would give me 2,000,000 baht. I don't care if you give it to me tomorrow or in 10 years time. That is how we do business....understand? I lend you 1,000,000 ---- you give me 2,000,000.

Edited June 6, 2014 by Mudcrab

[joshstiles]

Chao

The info you have stated is true. I have uncovered the same astonishing banking practices myself. Here's a real kicker for you

....you can elect to only pay the interest on a home mortgage (or any loan) and once the interest is paid off....then you can start to pay on the principal (sp?)

yeah....pretty f'd up

[isawasnake]

i sell you a car for 1,000,000 baht., Interest rate is 10%. Loan is 10 years. Total repayment is 2,000,000 baht. What is so hard to understand.

I said i would give you a car., You said you would give me 2,000,000 baht. I don't care if you give it to me tomorrow or in 10 years time. That is how we do business....understand? I lend you 1,000,000 ---- you give me 2,000,000.

Sums it up nicely. This is exactly how they think.

[fletchsmile]

Here's a link to a BOT of Thailand website that shows the fees that banks charge for early repayments on home loans. Second column from the right

http://www2.bot.or.th/feerate/internal.aspx?PageNo=9

Most of them show 3% fee on the principle outstanding. (NOT principal + interest for the entire loan period until termination). Listed here is the banks' standard practice.

If you refinance with the same bank, or early repay some/all in cash they will often waive the 3% fee as long as you're not in a promotional period.

For promotional periods, where you locked in a preferential rate - say X% fixed for 3 years, they are more likely to charge a penalty.

Where you refinance with a different bank it is very common for them to charge the 3%, as they lose you business

Sorry the link is in Thai, but you can always use online translate to get the jist.

BTW The link is specifically for house loans. Not car loans etc.

So as I say I'd be surprised if the OP's friend is on the hook for the principal + all the interest over the next X years. Not the way my own loan worked. Not the way the loans for that bank and others work. Not the way the charges are levied for early termination

Cheers

Fletch

[AnotherOneAmerican]

If the borrower walks away and the lender forecloses, the borrower would still be on the hook for any portion of the principal or interest due that is not satisfied by sale of the property under foreclosure.

Not true in Thailand.

Not true in USA.

True in UK

Don't assume your country and another country have the same rules on home loan default.

[pancakeman]

OP your assumptions are incorrect.

If you make an additional payment on your loan it will reduce the principle amount. The interest is then calculate on the new reduced principle amount as with any loan (I have used several Thai bank loans and they all work this way).

It's true that your monthly payments will not automatically be reduced; but your principle has been reduced so the total number of payments is reduced.

[kjhbigv]

If the borrower walks away and the lender forecloses, the borrower would still be on the hook for any portion of the principal or interest due that is not satisfied by sale of the property under foreclosure.

Not true in Thailand.

Not true in USA.

True in UK

Don't assume your country and another country have the same rules on home loan default.

In the UK, the banks have 12 years.

"The Limitation Act 1980 says a lender has 12 years from the date of the sale of the property, to start Court proceedings against a person for a mortgage shortfall debt. Sounds simple? Well, it’s not. This 12 year limitation unfortunately restarts itself every time the debt is acknowledged by the borrower. This means each time a payment is made towards the debt, however small, the clock restarts; and each time the borrower confirms either in writing, or even on the telephone, that they know that they owe the debt, or receives a demand for payment from their lender, the clock restarts."

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[Chao Lao Beach]

Here's a link to a BOT of Thailand website that shows the fees that banks charge for early repayments on home loans. Second column from the right

http://www2.bot.or.th/feerate/internal.aspx?PageNo=9

Most of them show 3% fee on the principle outstanding. (NOT principal + interest for the entire loan period until termination). Listed here is the banks' standard practice.

If you refinance with the same bank, or early repay some/all in cash they will often waive the 3% fee as long as you're not in a promotional period.

For promotional periods, where you locked in a preferential rate - say X% fixed for 3 years, they are more likely to charge a penalty.

Where you refinance with a different bank it is very common for them to charge the 3%, as they lose you business

Sorry the link is in Thai, but you can always use online translate to get the jist.

BTW The link is specifically for house loans. Not car loans etc.

So as I say I'd be surprised if the OP's friend is on the hook for the principal + all the interest over the next X years. Not the way my own loan worked. Not the way the loans for that bank and others work. Not the way the charges are levied for early termination

Cheers

Fletch

Thanks so much Fletch, excellent in Google translate.

[CaptHaddock]

If the borrower walks away and the lender forecloses, the borrower would still be on the hook for any portion of the principal or interest due that is not satisfied by sale of the property under foreclosure.

Not true in Thailand.

Not true in USA.

True in UK

Don't assume your country and another country have the same rules on home loan default.

The following are full-recourse states in the US where the lender indeed has the right to come after the borrower to satisfy the loan after a foreclosure. I don't know whether this is true in Thailand, but I am guessing that it is because banks generally have terms favorable to them, e.g. no fraud protection on credit cards.

Full-Recourse States

Alabama

Arkansas

Colorado

Delaware

District of Columbia

Florida

Georgia

Hawaii

Illinois

Iowa

Indiana

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Montana

Mississippi

Missouri

Ohio

Nebraska

Nevada

New Hampshire

New Jersey

New Mexico

New York

Oklahoma

Pennsylvania

Puerto Rico

Rhode Island

South Carolina

Tennessee

Vermont

Virginia

West Virginia

Wisconsin

Wyoming

[fletchsmile]

...

I don't know whether this is true in Thailand, but I am guessing that it is because banks generally have terms favorable to them, e.g. no fraud protection on credit cards.

Wrong guess I'm afraid. Foreclosure is not an easy process in Thailand if you compare to say US.

Foreclosure on a property by a bank is also completely different to an individual seeking redress for cc fraud.

Cheers

Fletch

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