Card Loan Usage Surges... Average Interest Rates Decline for Two Consecutive Months (Comprehensive)

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 was found to have decreased compared to the previous month. This is analyzed to be due to the adjustment of loan speeds 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) on card loans based on the standard grade of seven specialized card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana Card) recorded between 11.64% and 14.26%. The average 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 to 13.51%. Hyundai Card and Woori Card lowered their average interest rates by more than 1%, pulling down the average for specialized card companies.

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

Average Interest Rates for Grades 1-2 Decline for 5 Consecutive Months, Grades 9-10 Remain Stable

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

Nevertheless, the average interest rate on card loans is on a downward trend. This is attributed to the abundant liquidity in the market due to low interest rates and the introduction of loan products targeting high-credit borrowers in grades 1-2. The increase in high-credit customers using card loans, which are mainly used by mid-to-low credit borrowers due to tightening loans in the primary financial sector, also had an impact. Card companies are also adjusting the loan speed for low-credit borrowers due to concerns about delinquency rates.

In fact, the loan interest rates offered to grades 1-2 have fallen 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 9-10, 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 an annual interest rate range of 4.0% to 10%. 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% 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 rates below 20-24%, Samsung Card had the highest proportion at 23.91%.

An industry official said, "Although the number of card loan users is increasing, card loan interest rates are on a downward trend," adding, "Each company is adjusting the total volume of card loans with different interest rate strategies." Another industry official said, "Ahead of the year-end, card companies are trying to restrain loans to low-credit borrowers as part of risk management due to concerns about rising delinquency rates," and added, "With the upcoming reduction in the legal maximum interest rate, loans to low-credit borrowers will inevitably decrease gradually."