Forecast, Strengthening Support for Vulnerable Low-Income Groups' Recovery through Improvement of Debt Adjustment System

Introduction of Incentive System for Diligent Debt Repayers

[Image source=Yonhap News]

[Asia Economy Reporter Park Sun-mi] The Korea Deposit Insurance Corporation announced on the 25th that it will improve the debt adjustment system and implement it from the 1st of next month to help vulnerable debtors who find it difficult to repay their debts normally reduce their debt burden and achieve economic self-sufficiency.

The KDIC allows debtors undergoing debt adjustment to repay in installments for up to 10 years if a lump-sum repayment is difficult, and provides an incentive to installment debtors who have been making faithful repayments for more than one year and wish to make a lump-sum repayment by additionally reducing 10-15% of the remaining debt.

Additional reductions will also be made for debtors affected by COVID-19. For socially marginalized groups such as persons with severe disabilities and basic livelihood security recipients, the maximum principal reduction rate of 80-90% will be applied. For COVID-19 affected debtors as well, a high reduction rate of 90%, which is the maximum principal reduction rate applied to socially marginalized debtors, will be applied.

The KDIC decided to lower the high-interest loan contract interest rates to a lower level to reduce the debt burden of low-income debtors. The adjustment interest rate applied when adjusting the interest rate was previously 6.1% (the arithmetic average of personal credit loan interest rates for grades 3-10), but it will be lowered to about 2.59%, which is the level of bank household loan interest rates.

Furthermore, the maximum principal reduction rate for socially marginalized groups, who are eligible for additional reduction rates, will be further expanded to help vulnerable groups overcome economic difficulties and provide a stepping stone for recovery support. A special discharge will also be implemented to exempt the remaining debt for certain vulnerable debtors who have been faithfully repaying more than half of their contracted debt for over three years under specific conditions.

A KDIC official said, "We expect that the improvement of the debt adjustment system will provide a stepping stone to help economically vulnerable groups who have fallen into economic difficulties due to COVID-19 to recover economically."