Why lending rates are higher at finance companies

Interest rates at finance companies are higher than those at commercial banks for many reasons. Finance companies are not allowed to mobilize deposits from individuals, and their main source of operating capital is charter capital and funds mobilized in the money market and capital market. Their customers tend to be low- and middle-income earners with small-value, short-term loans. Lending is done through points of sale service introductions, so more staff are needed. The Governor of the State Bank of Vietnam has, however, affirmed that the establishment and existence of consumer finance companies meets a practical need and gives customers who are unable to access loans from commercial banks the opportunity to still borrow capital. It is very much necessary to exert management oversight and ensure that the operations of finance companies comply with legal regulations.