Consumer Loans in Japan: The Money Lending Business Act, the One-Third Rule and Interest Caps

Japanese banks and consumer finance companies advertise “free loans” (フリーローン), car loans, card loans and other personal credit products, many of which can be applied for entirely online. If you live in Japan, including as a foreign resident, it helps to know that the rules depend on who is lending: banks and registered money lenders are governed by different laws.

This guide summarises the main rules from Japan’s Financial Services Agency (FSA) in English. We do not quote rates or conditions for any lender, and this is not legal advice; always read the lender’s own documents, which are usually in Japanese.

Banks vs registered money lenders

The FSA explains that money lenders (貸金業者) are businesses that lend money and are registered with a Local Finance Bureau or a prefecture. Consumer finance companies and credit card companies, for cash advances, are typical examples. Banks, shinkin banks, credit cooperatives and labour banks also lend, but they are not money lenders under the Money Lending Business Act. This matters because some protections, such as the borrowing limit below, apply only to money lenders.

The total volume regulation: the one-third rule

The revised Money Lending Business Act introduced a total volume regulation (総量規制). According to the FSA’s explanation, if the total amount you have borrowed from money lenders exceeds one third of your annual income, you cannot take out new loans from money lenders. Key points from the FSA’s Q&A:

It applies to borrowing by individuals from money lenders. Borrowing from banks and borrowing in a company’s name are not covered.
Borrowing from several money lenders is added together.
Housing loans and car loans are excluded from the regulation.
Credit card cash advances count; credit card shopping does not.
If you are already over the limit, you do not have to repay the excess immediately, but you cannot borrow more from money lenders.

The Japan Financial Services Association also explains the rule in its page on borrowing up to one third of annual income.

Income documents

Money lenders may ask for proof of income, such as a withholding tax slip or salary statement, especially for larger amounts. Have these ready if you apply.

Interest rate caps

The FSA explains that the reform lowered the upper limit on interest. Under the Interest Rate Restriction Act, the cap is 15% to 20% a year, depending on the loan amount; interest above that is civilly invalid. The reform also eliminated the so-called “grey-zone” rates that used to be charged between that cap and the higher criminal limit under the Investment Act. Bank card loans are subject to their own rules, so always check the rate in the contract.

Check that a lender is registered

The FSA runs a free registered money lender search service (登録貸金業者情報検索サービス). Use it to confirm that a company is registered before applying. Unregistered lenders, often called yamikin (闇金), are illegal and may charge extreme interest or use threatening collection methods.

Warning signs

Offers of loans “with no checks” via text message, social media or flyers.
Requests to pay a fee or “guarantee money” before receiving the loan.
Requests to send your bank card, passbook or mobile phone.
Lenders that cannot be found in the FSA’s registered lender search.

Where to get help

The FSA operates a Counseling Office for Financial Services Users that handles questions and complaints. If you have multiple debts that are becoming unmanageable, the FSA’s pages on multiple debt measures and the Money Lending Business Act list consultation resources.

Check a lender in the FSA’s registered lender search

Official FSA service (in Japanese). We are not a lender or broker.

Tips for foreign residents

Contracts and disclosures are usually in Japanese. Ask for explanations, and use translation tools carefully for key terms such as interest rate (金利), repayment (返済) and annual income (年収).
Lenders may require a residence card, a Japanese bank account and proof of stable income.
Compare a bank loan with a money lender’s loan: the rules and costs differ.
Never sign anything you do not understand.

Frequently asked questions

Does the one-third rule apply to bank loans?

No. The FSA explains that it applies to borrowing from money lenders, not banks.

Is a credit card shopping balance counted?

No. Cash advances are counted, but shopping is not.

What is the maximum legal interest rate?

Under the Interest Rate Restriction Act, 15% to 20% a year depending on the loan amount, according to the FSA.

How do I check whether a lender is legal?

Use the FSA’s registered money lender search service.

Sources

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Opportuly Careers is an independent guide. We are not a bank, lender or credit broker, we do not receive applications and this article is general information, not financial or legal advice.