Structure of the Unsecured Consumer Loan Business

Many consumer finance companies currently adopt a contract method called a “revolving contract.” This type of contract is characterized by the ability of the applicant to take out loans and repay them repeatedly within the credit limit, which is predetermined according to the applicant’s creditworthiness. The customer also has the option to make additional repayments by setting a minimum monthly payment. This type of contract offers a high level of convenience and enables flexibility in transactions according to the preferences of the users themselves.

The fundamental element of the consumer finance business is about “risk pricing”. Loan amounts and interest rates are determined based on the borrower’s creditworthiness. Consumer finance companies are making efforts to reduce non-performing loans at an early stage by providing appropriate credit.

Credit assessments are conducted at two stages: initial credit screening at the time of contract, and ongoing credit assessments after the loan has been issued. In addition to obtaining the customer’s credit information by using a credit information organization, each company’s original scoring system (automated credit screening system) is the basis of its provision of appropriate credit. The scoring system, in particular, which is also said to form the know-how of the consumer finance business, is a credit database created by statistical classification and analysis of the vast amount of customer transaction data owned by a consumer finance company, which enable lenders to instantly assess loan approval, credit limits, and other credit terms.

Furthermore, consumer finance companies classify their loan receivables into three categories for effective management: Performing loans: Loans that are being repaid on schedule. Delinquent loans: Loans for which repayment has not been received by the due date. Charged-off loans: Loans that remain unpaid for a long period due to reasons such as borrower bankruptcy or debt restructuring. By classifying receivables in this manner, companies are able to carry out appropriate credit and risk management.

There are basically four methods to collect receivables: by telephone, in writing, door-to-door, and by legal procedures. AIFUL prohibits door-to-door collection as it has established a call center system.

Generally, initial repayment delays are mostly due to the payment date having been forgotten and seldom lead to serious delays. A majority of such cases can be easily solved by calling the customer by phone or sending a written notification. For customers who have become unable to repay due to various reasons, AIFUL reviews repayment terms, including extending payment dates and reducing the interest in some cases, and offers advice on family finance management while maintaining close communications such as through counseling.