It is not easy to borrow from a new bank to pay off old debt.

Some banks have started offering low-interest loans to individual customers to pay off car or home loans from other banks, but in reality they are not easily accessible.

Previously, borrowing from a new bank to pay off old debts was only applied to production and business needs. However, from September 1, the State Bank allows individual customers who borrow for consumption and real estate to borrow from a new bank to pay off old bank debts.

Currently having to borrow at high interest rates at a private bank in Ho Chi Minh City, Mr. Nguyen Minh Ha said he was excited about this new policy, hoping to switch to a new bank with cheaper interest rates, reducing the pressure of monthly interest payments.

Mr. Ha said that two years ago, he bought real estate in a project in Long An and was assigned by the investor to borrow capital through a partner bank. In the first year, he enjoyed preferential interest rates and a grace period for principal repayment, so the pressure to repay the debt was insignificant. However, from the second year, Mr. Ha's loan was subject to a floating interest rate of 13.5% per year, sometimes up to 14.5%, making the monthly principal and interest payments a burden in a context where his income was lower than before.

Yesterday, he consulted a credit officer at BIDV - one of three state-owned banks launching a low-interest loan policy to repay other banks' debts, and was advised to choose a loan package with an interest rate 3-6% lower per year than the current loan.

Accordingly, the consultant offered a preferential interest rate of 6.8% for 6 months or 7.3% for the first year. After the preferential period, the loan returned to the floating interest rate, currently around 10.5%, still 3% lower than the private bank he was borrowing from.

He estimated that he would benefit much more from cash flow if he got a loan from the new bank. “I accept a fee of about VND35 million to switch to the new bank, including a 3% prepayment penalty fee at the old bank and VND6 million to buy loan insurance at the new bank,” said Mr. Ha.

Because with the preferential interest rate plan in the first year, he estimated that he would reduce about 50 million in interest payments next year compared to the old bank. Not to mention that in the long term, Mr. Ha also reduced the pressure of paying monthly interest because the floating interest rate at the new bank is 3% lower than the old bank.

Not only Mr. Ha, some other people said they also went to the bank to learn about this loan package.

It is not easy to borrow from a new bank to pay off old debt.

Transaction at a commercial bank: Photo: Thanh Tung

Currently, there are 3 state-owned banks including Vietcombank, BIDV and VietinBank implementing the policy of "new loans to pay old debts" and applying lower interest rates than the private group.

At Vietcombank, the preferential interest rate is from 6.9% per year for the first 6 months or 7.5% per year for the first 12 months or 8% per year for the first two years. After the preferential period, Vietcombank will apply a floating interest rate, currently fluctuating around 10.5%.

With BIDV, the initial preferential interest rate for short-term loans is 6% per year. Medium and long-term loans have an initial preferential interest rate of 6.8% per year. Meanwhile, VietinBank offers preferential interest rates of 7.5% for consumer loans.

In addition, some other private banks such as MB and Techcombank also apply this program with a loan term not exceeding the remaining term of the loan at the old bank, and can extend the principal repayment for up to the first two years.

“The new policy basically does not increase the outstanding debt of the entire system, but it gives customers more choices and increases interest rate competition between banks to attract customers,” a bank leader shared.

Looking forward to the new policy, however, Mr. Nguyen Minh Ha said it was not easy to get a loan from the new bank. He said his loan was worth less than 1 billion VND, and had previously been rejected by a private bank under this program. Now he has come to BIDV, but also faces the obstacle of the collateral being real estate in the province, which is expected to be undervalued, making the outstanding loan lower than the loan at the old bank.

Another customer also said that she intended to withdraw her debt from the old bank but had to pay a high penalty fee of 3% for early repayment. In addition, she had to pay other fees such as red book mortgage release fee, new mortgage registration fee, notary fee, insurance for the new loan...

“All of these expenses combined make switching to another bank loan not much different in terms of cost while the procedures are relatively time-consuming,” she said.

The branch director of a state-owned bank in Ho Chi Minh City said that after half a month of implementation, his branch has not received any cases in this category. Apart from the fact that customers need to submit a request for early repayment at the old bank, the loan procedure will be similar to disbursing a new loan. The bank will re-evaluate the collateral from the beginning, even if the customer uses the property that is currently mortgaged at the old bank as collateral for the new loan.

Most customers who seek this “new loan, old payment” option want to use the same property that was mortgaged for the old loan as collateral for the new loan. However, each bank’s risk appetite is different.

The director of this state-owned bank branch said that future collateral assets such as houses and land without pink or red books are unlikely to be considered for loans. Re-evaluation of collateral assets, especially real estate in the current market, can also cause valuations to decline, resulting in lower loan balances than the previous amount.

In addition, the loan value is also a factor that banks consider. Due to the procedures, some large banks will not be too interested in low-value personal loans.

A credit officer at another “Big 4” bank in Ho Chi Minh City said that he has not yet signed any contracts for this new loan to repay old debt. The bank where he works gives priority to accepting collateral other than the mortgaged property. In addition, customers who have a history of being overdue for more than 10 days or have had to restructure their principal due to the pandemic are also not eligible for the debt transfer program.

According to Quynh Trang - Thi Ha/VNE

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