Q: Around my local train station I see companies like Promise, Takefuji, Aiful, Acom and others. My Japanese friend told me they are consumer loan companies, but he didn’t explain how they work. How do I, a foreigner, get a loan from one of these companies?

A: The consumer loan firms you mentioned are the four largest personal loan companies in Japan. In many cases the majority shareholders of these public companies are the same respected banking institutions that citizens trust with their finances every day. For example Tokyo Mitsubishi UFJ owns almost 13% of Acom and more than 20% of Promise is owned by Sumitomo Mitsui Banking Corporation (SMBC). In Japan’s low interest environment the stake-holder banks are able to provide or arrange capital to these firms at very low rates The consumer loan companies in turn make funds available to retail borrowers at VERY high interest rates. Prior to June 2007 most of these firms had an effective interest rate ranging from 13.1% to 29.2%.

As a foreigner it will be somewhat difficult for you to qualify for an unsecured loan from one of these institutions. Depending on how long you have been in Japan, you may have insufficient domestic credit history or local job history on which to base your loan application.

From a personal financial planning perspective, lack of easy access to high interest loans can only be viewed as a positive thing. Official personal bankruptcy figures in Japan over the past five years show the number of individuals declaring bankruptcy to be between 165,000 and 242,000 individuals per year. Unofficial estimates suggest much higher numbers, and many believe the underlying cause in many of these cases is due to easy access to unsecured funds via consumer loan companies.

If you can’t afford something now, purchase it later when you can afford it more easily. The enjoyment you get from your purchase can’t compare to the stress of watching your finances spiral out of control.

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