For much of Western society, it is exceedingly easy to attain credit in various forms. Credit cards are offered to even a high school student with a bank account. Home or car loans may be offered to almost anyone with a job. Being an advanced economy with one of the most well managed financial systems in the world, many foreigners may feel that the Japanese situation would be similar to the West in these regards. However there are many differences that should be understood. Here is a guide to various credit considerations as of 2016. The unique risks will be explained first, and then, with that understanding, the process for foreigners looking to engage in credit services will be explained.
Before continuing with the specific kinds of credit availability in Japan, one very important thing to note regarding credit is that interest fees are PREDETERMINED AND SET IN STONE with every purchase, be it credit card payments for a groceries purchase to a home loan. In most countries, interest fees are accrued as long as a balance is outstanding, and no charges are accrued once a purchase has been paid off. In Japan, if arranging a purchase with a loan, the interest required over the length of that loan is calculated and included in the amount to be paid off. For example, if taking a 4 year loan to pay for a car, and deciding to pay it off quickly a year ahead of time, the amount that would have been paid for interest on that last year is still due. Paying off any loan quickly may bring peace of mind and reduce inconvenience later, but there is no financial benefit to do so. Whenever arranging any kind of loan or credit purchase, it is financially beneficial to arrange payment that can be completed as quickly as possible to reduce the overall interest charges.
Regarding kinds of credit services, first of note are the various financial services that exist only as “card loan” entities. Without slandering any specific company, as they can provide a marginal positive service to a small number of people, typically these services are only used by uninformed people or people who have ruined normal credit services elsewhere and who are desperate to get money quickly. Card loans can be made by anyone with a bank account, even if there is no money in that account, and an ATM card is received in as little as 24 hours. Then, going to any ATM, someone can withdraw huge sums instantly (as in, over $10,000) to be paid back via bank transfer installments.
Notoriously, after borrowing too much and with payments too difficult, the borrower goes back to borrow more from this company or makes an account with another company just to borrow more to cover the initial payments, and the cycle gets worse. The card loan companies themselves are owned by respectable institutions, but to collect money from delinquent borrowers, collection agencies are hired. These agencies have expertise to collect owed money in creative ways (i.e., the “yakuza”; the Japanese mafia). These loans are INCREDIBLY easy to get, slickly advertised, and may actually look positive to some foreign people who are used to higher rates on credit cards in the West, but it should be the last resort considered by a foreigner to the point that almost nobody should make that consideration. In every way, a typical credit card advance is better, so avoid card loan services and the difficulties that may come. Remember that almost everyone using these services ending up with difficulties assumes at the beginning that card loans are a temporary, easy, and cheap fix to a small problem only to end up in a bad cycle, and there is no reason that this could not be you as well.
While still not recommended unless absolutely necessary, a credit card advance is a much more reasonable personal small loan service if necessary, and has the same convenience. This is called “cashing” (キャッシング). The safeguards include that the amount that can be withdrawn is lower than a card loan company’s and are tied to a confirmed income to not be too much to pay back, and that card companies will usually refuse to issue a card if a large amount is due to another company at a certain time. Typically payments are set at 5000, 10000, or 20000 yen monthly based on the amount borrowed (and this cannot be decided personally, so someone wanting to pay off quickly may borrow 110,000 instead of 100,000 to pass that threshold of higher monthly payments and ironically then pay less interest overall). The rates are usually lower than for card loans and much lower than for similar cash advance services in the West. In addition, use of the card and paying off appropriately creates customer rewards points that can be redeemed for products or for gift certificates that work as cash in any store accepting that credit card. (Japanese skill is needed to manage a rewards account, though.) A smart credit card user paying off the entire balance monthly most of the time and only rarely making purchases in payments may be able to get more rewards from the credit company than the fees charged for interest in a given year. In my example, I usually have 13,000-16,000 JCB gift certificates sent to me yearly, and my total amount I pay on interest for large purchase payments is about half of that. One year, I had a sudden charge that came up at the same time as apartment renewal fees and required car maintenance. It wasn’t pleasant, but the “cashing” was easy enough and my rewards points were a bit of a bonus later that year. Compared to the embarrassment of asking friends or family for help or something similar, I was happy to have the option.
On the subject of credit cards, using a Japanese credit card is VERY different than in other countries. As is the case with other forms of loans, the system is much more secure and outstanding balances are not allowed. When making a purchase, the person at the register will ask how many payments, are lightly confirm if it is for one payment only. Unless needing to make several payments, replying with “ikkai” or “ikkatsu” (meaning a one-time payment) is normal. If making a large purchase and wanting to split it into amounts, AT THE TIME OF PAYMENT, you must ask for this. Over three payments over three months, the request should be “sankai barai”. 12 months, “juu-ni kai barai”, etc. This is the only way to use the “credit” portion of credit cards. For myself, I did not know this system when getting my first credit card in Japan and assumed it was like in the US. My first purchase with my Japanese card was for a new computer. I had intended to pay it off over two or three months at my own pace as with a US card. I was very surprised to find that the entire amount of the computer was paid in full and I had no option to pay at my own pace. It wasn’t a big issue other than now having to work with a much smaller than expected budget the next month and it meant that I paid no interest on the computer purchase, but such a surprise may be very inconvenient for those not planning for the situation. Please be aware of this. Of course, if paying with a foreign card, only “ikkai barai” is possible, and you will deal with that balance the same as you would in your own country.
Large loans requiring an application, for the purchase of a car or house, will have many factors and this is where being a foreign residence comes up most of the time. These factors include nationality, age, income (which will be checked), marital status and income of spouse if applicable, visa status, and cash on hand. The ease of obtaining a large loan will also be impacted on if it is handled by the agent or separately by a bank. The agent will work with a partner institution (Mitsubishi Auto Loans being fairly popular for car loans for example) and this can be arranged at the agent within thirty minutes with a high rate of approval, but for interest rates of 30-50% more than the best rate you can get at a bank. However, banks would require a few extra steps to set up, and when all is worked out, especially if not having Japanese citizenship or a Permanent Resident visa, getting approved for a loan at a rate much lower than at the dealer may be difficult (although still likely a better deal than through an agent, if accepted).
If having the time, it is always better to go through a couple of banks for loan options before deciding if obtaining a loan through a bank or through a dealer directly. Especially if buying a cheap used car at 300,000-500,000 yen or so, for example, the difference may be small enough to justify just doing it through a dealer quickly and easily even if slightly more expensive in the end. In general, car loans are commonly attained by foreigners even on non-permanent visas if not very expensive, but home loans would be very difficult in some cases unless submitting a significant portion up front as a down payment or having a Japanese national spouse be the applicant for the loan.
If understanding the Japanese credit card system and wishing to apply for one, many foreigners have faced hurdles to get a first one. This is largely due to a lack of credit history more than having foreign nationality, though. For Japanese people as well, many first credit cards are either with a bank with which there has been a long connection by holding an account, or by having an account connected to a parent who has that card. For foreigners this is not usually possible. Some people face rejection not only with the same bank in Japan as their personal account, but also from the Japanese branch of a foreign bank in which they have an account and credit card already! The Japanese and foreign credit systems are, as mentioned, different, and certain processes will not be as expected. So, how can a foreigner get a Japanese credit card?
The most likely location is surprising to many: your nearest grocery store. Almost every chain grocery store has its own branded combination customer rewards card/credit card under the auspices of a larger bank. The limit on this card is incredibly low, perhaps 50,000 or 100,000 yen at most and some as low as 10,000 yen. However, due to the low limit, these very low risk cards are easy to obtain. A foreigner fresh in Japan with less than a year remaining on a work visa would almost certainly be approved while a “standard” credit card applied at a bank or online would almost certainly be rejected in the same situation. Even if branded with that grocery store, the card itself can be used as any other credit card for purchases at any store or online as it is a standard JCB, Visa, or Mastercard. After using this card and successfully paying it off for a short time, the bank sponsoring that card would contact to inquire about interest in obtaining the “standard” card from that bank. Also, the chances of applications for other credit cards being accepted very quickly go up as a foreigner shows responsible credit use in the Japanese system, even if in small amounts.
If choosing among JCB, Visa, or MasterCard, and if planning to use the card only in Japan, there is a SLIGHT advantage to choosing JCB. It has just a slightly higher number of retailers that accept it in Japan, but also, as it is only a Japanese card, a foreigner faces a slightly less chance of discriminatory rejection, as only someone living in Japan in the longer term would have one. Unless shopping at a specific store requiring it, the times when JCB’s advantage over other cards may come up only once or twice in a lifetime, though, so if planning at all to use this card while abroad, Visa or MasterCard is the better choice. If wishing to obtain an American Express card, understand that it is notoriously difficult for foreigners to receive one from a Japanese bank, even if one with a heavy annual fee. Although foreigners are still most likely rejected there even with good credit history in Japan, the highest chances to be accepted are with the Saison bank.
For home and car loans, the acceptance has less to do with credit history and more to do with visa status and employment. Home loans should not be expected without a Permanent Residence visa unless providing a down payment so large that default on the loan payment and foreclosure would still result in a profit for the bank. Again, a multinational married couple would be much more likely to obtain a loan in this situation with the foreigner on a spouse visa not requiring a company’s sponsorship guarantee and for the loan to be in the Japanese spouse’s name. Even so, rejection would likely be a higher possibility than for a “normal” Japanese couple, though. Also, it is good to keep in mind that it is MUCH more likely to be approved for a loan, whether foreigner or otherwise, if the final loan payment would be made before the borrower turns 65 years old. If attaining the most common 30 year home loan, this means finalizing the loan by age 35, unless already having children. If an applicant is 40 years old and childless, he or she can expect to get approval only on a 25-year repayment, for example. Many lenders are concerned about lending to people who may retire before finishing paying off a home and who are without a child who may inherit it who also would have an interest in preserving ownership. There are currently certain legal rules against a lender regarding evicting retirees.
For car loans, as mentioned, it is not too difficult for anyone with a proper visa and employment to be approved by the lender in association with a dealer, especially if for a smaller amount. Again, as mentioned, if seeming more “stable” as a long term resident in Japan, bank loans especially for buying a car are cheaper if obtained directly without the dealer.
Lastly, as a cultural note regarding these things, it is EXTREMELY taboo to discuss the topic of borrowing money with a company or coworkers. If brought up, people will assume that it is for the reason of fishing for someone to offer to help financially, even if this was not intended. (If this IS intended and made clear that you would like the company to lend money in some way, it will be seen as highly unprofessional and may permanently impact the image others have of you in your company.) In this country where there are so many methods to easily borrow money, it is expected that such worries are not to impact the workplace. Please keep such issues to yourself, sharing only with private friends or family if needed, and borrow responsibly if absolutely necessary.