"If the maximum interest rate is lowered to 20%, 570,000 people will be driven to illegal private loans"

Korea Asset Finance Association, 11th Consumer Finance Conference

[Asia Economy Reporter Minyoung Kim] It has been diagnosed that if the legal maximum interest rate is lowered from the current annual 24% to 20%, about 570,000 financial consumers may move to the illegal private loan market.

At the '11th Consumer Finance Online Conference' held by the Korea Credit Finance Association on the 29th, Professor Choi Cheol of the Department of Consumer Economics at Sookmyung Women's University announced the results of a study on 'Institutional Improvement of the Loan Finance Market for Inclusive Low-income Finance.'

Through the study, Professor Choi predicted that if the maximum interest rate is lowered, up to 570,000 consumers could be driven into the illegal loan market. He stated, "If the maximum interest rate is reduced by 4 percentage points, an excess demand of about 3 trillion won will occur, and applying the average loan amount per person of approximately 5,247,000 won, it is expected that about 573,000 excess demanders will emerge."

He added, "If loan suspensions in the loan industry increase due to the interest rate reduction, the number of demanders who cannot get loan opportunities will likely increase further. Along with additional damages caused by financially desperate consumers resorting to illegal private loans, the mid- to long-term contraction of the loan finance market could lead to a more severe financial exclusion situation."

Furthermore, Professor Choi emphasized, "Direct market interventions and controls such as lowering the maximum interest rate require careful consideration."

Several bills to lower the maximum interest rate to 20% have been proposed in the 21st National Assembly.

Im Seungbo, Chairman of the Korea Credit Finance Association, expressed concern, saying, "New loans in the loan industry decreased to half within one year after the maximum interest rate was lowered to 24%, and loan balances sharply dropped by 1.5 trillion won. Along with the deterioration of profitability due to strengthened regulations, delinquency rates are also rising. With the Consumer Credit Act, which regulates all processes of personal bonds, being announced for legislation, it is expected that loan finance, which has supplied emergency living funds to low-credit, low-income citizens, will find it difficult to perform its functions."