Card Loan Usage Surges... But Average Interest Rates Decline

October Card Loan Interest Rates
Average 13.24% at 7 Major Card Companies
Down 0.37 Percentage Points from Previous Month
Impact of Slowed Loans for Low Credit and Increased Loans for High Credit

[Asia Economy Reporter Ki Ha-young] Although the number of card loan (long-term loan) users is rapidly increasing, the average interest rate on card loans last month fell compared to the previous month. This is analyzed to be due to the adjustment of loan speed for customers with high default risk amid the prolonged COVID-19 pandemic, and the increase in high-credit customers using card loans relatively due to tightening loans in the primary financial sector.

According to the disclosure by the Korea Federation of Credit Finance Companies on the 25th, as of the end of October, the average interest rate (operating price) of card loans based on the standard grade of seven full-service card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana Card) recorded 11.64% to 14.26%. The average value of the seven companies was 13.24%, down 0.37 percentage points from 13.61% in the previous month.

Among the seven card companies, four lowered their rates while three raised them. Woori Card had the lowest rate at 11.64%, down 1.1 percentage points from the previous month. Following that, Hyundai Card lowered by 1.19 percentage points to 12.26%, and KB Kookmin Card decreased by 0.21 percentage points to 13.16%. Lotte Card also fell by 0.52 percentage points from the previous month to 13.51%. Hyundai Card and Woori Card lowered their average interest rates by more than 1%, pulling down the average of full-service card companies.

On the other hand, Shinhan, Samsung, and Hana Cards raised their rates compared to last month. Hana Card recorded 13.64%, up 0.12 percentage points from the previous month, and Shinhan Card recorded 14.21%, up 0.22 percentage points. Samsung Card rose by 0.11 percentage points to 14.26%, the highest average loan interest rate among the seven card companies.

Card loan usage has been continuously increasing this year. In September, the new usage amount of card loans by the seven full-service card companies was 4.1544 trillion KRW, a sharp increase of 34.3% compared to the previous year. In August, 3.9066 trillion KRW was executed, up 11.7%. The impact of COVID-19 and the recent overall expansion of loan demand including real estate led to the surge in card loans.

Nevertheless, the average interest rate on card loans is on a declining trend. This is interpreted as a result of a large amount of money flowing into the market at low interest rates and the introduction of loan products for high-credit customers in grades 1 to 2. The increase in high-credit customers using card loans, which are mainly used by mid- to low-credit customers due to tightening loans in the primary financial sector, also had an effect. Card companies are also adjusting the loan speed for low-credit customers due to concerns about delinquency rates.

In fact, the loan interest rates offered to grades 1 to 2 have been falling for five consecutive months. Woori Card had the lowest rate at 6.45%, down 0.09 percentage points from the previous month. On the other hand, for customers in grades 9 to 10, DGB Daegu Bank’s card rate remains unchanged at 18.90% for four months.

Woori Card also launched the 'Wooka Minus Loan,' which offers card loans to high-credit customers within the range of 4.0% to 10% per annum. Lotte Card operates a minus card that provides card loans starting from a minimum annual rate of 4.95%.

As of September, among Woori Card customers using card loans, 20.62% of members received interest rates below 10%, nearly twice as many as other companies. In contrast, most card companies have the majority of members receiving rates between 14% and 18%. Among low-credit members with scores below 20-24%, Samsung Card had the highest proportion at 23.91%.

An industry official said, "Although the number of card loan users is rapidly increasing, card loan interest rates are on a declining trend," adding, "Each company is adjusting the total volume of card loans through their interest rate strategies."