[Wondara's Small but Certain Finance] Can I Not Use the 'Interest Rate Reduction Request Right' Even Though My Salary Increased?

Borrowers' Right to Request Interest Rate Reduction When Credit Status Improves
Salary Increase Does Not Automatically Guarantee Reduction... Income Growth Must Be Proven
However, Property Tax May Also Rise, So Careful Consideration Is Needed

As the saying goes, "If the company atmosphere worsens, open the stock window," these days, when it's hard to join conversations without interest in financial investment, we plan to deliver basic financial investment tips every weekend for those who are 'financial investment novices' and feel shy to ask. We will resolve the curiosities of Mr. Kim Jjomjjom, who wants to start 'Jjomjjomdari' (a neologism meaning 'little by little' or 'small') financial investment, through 'Wondara's Simple but Certain Financial Investment.'

On the 21st, as the KOSPI index surpassed 3,000, sparking a stock investment craze, citizens visiting Kyobo Bookstore in Jongno-gu, Seoul, are looking at books related to stock investment and financial management. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Wondara] # After creating a negative balance account, Mr. Kim Jjomjjom read an article about the 'right to request an interest rate reduction' and decided to try it. Considering his recently increased salary and repaid loans, he judged that he might be eligible for an interest rate reduction request and visited Shinhan Bank, which he has been using steadily since university, bringing his income tax withholding certificate, employment certificate, and ID. However, the bank clerk replied, "You are not eligible for an interest rate reduction request."

▲What is the right to request an interest rate reduction?=Many people may be hearing the term 'right to request an interest rate reduction' for the first time. This right allows borrowers to request a lower loan interest rate from financial institutions if their credit status has improved after taking out a loan. It applies not only to salaried employees and individuals but also to self-employed persons and small businesses, and is implemented by banks, savings banks, credit card companies, and insurance companies.

▲How do you apply?=You can apply in person or remotely to the bank, credit card company, or insurance company where you want to exercise the right to request an interest rate reduction. If you are an employee, prepare documents that can prove your workplace, salary, position, transaction history, and asset changes. For corporations, documents proving improvements such as company bond rating upgrades, financial status improvements, or patent acquisitions are required. The Financial Supervisory Service recommends contacting the bank if your credit rating has improved by two or more levels due to credit rating upgrades, employment, promotion, or acquisition of professional certifications.

▲Is it possible if I was promoted from assistant manager to manager?=If you were promoted but your salary did not increase, it is uncertain. Credit products fundamentally consider the 'ability to repay debt,' so if only your position increased without a salary raise, there is likely no change in the credit rating evaluated by the bank.

▲I was promoted to manager and my salary increased by 20 million KRW. It should be possible, right?=It may or may not be possible depending on the case. In Mr. Kim Jjomjjom's case, he was told, "It is not possible because the negative balance account applies a preferential interest rate agreed with the company." Simply put, the right to request an interest rate reduction can be exercised only for loan products where the interest rate is determined based on the individual's credit rating. Since Mr. Kim's negative balance account interest rate was determined according to the 'preferential interest rate' agreed between his company and the bank, he could not use the reduction request right even though his salary increased.

▲Then, is the right to request an interest rate reduction meaningless for employees?=Depending on the loan product, some loans are executed based solely on the company's creditworthiness, while others evaluate both the company's and the individual's creditworthiness. Even for the same employee loan product, if the loan was granted after evaluating both the company's and the individual's credit ratings, the right to request an interest rate reduction applies.

▲Is this system more advantageous for the self-employed?=Since individual business owners receive loans based on their personal credit ratings, theoretically, if they earn more money, reduce debt, and increase assets, they become eligible for the right to request an interest rate reduction. However, self-employed individuals must first prove an increase in income to use this right. If they report a large increase in income to exercise the right, they may face higher income taxes, so they should judge appropriately depending on the situation.

▲Can the right to request an interest rate reduction be used for mortgage loans?=Banks explain that it can be used only for loans where interest rates are differentiated according to the bank's personal credit evaluation system (CSS). It varies according to each loan provider's regulations, so direct consultation is recommended. However, Citibank states that 'agreement loans, mortgage loans, financial fund loans, and other products where credit status does not affect interest rates are excluded.' Shinhan Bank explains that 'loans with interest rates determined by separate agreements or policy fund loans with rates set by external institutions are excluded.'

▲How widely is the right to request an interest rate reduction used?=According to statistics on the right to request an interest rate reduction from banks submitted by the Financial Supervisory Service's Bank Supervision Department to Assemblyman Kim Byung-wook, the Democratic Party's ranking member of the National Assembly's Political Affairs Committee, the number of cases has increased annually: 113,071 in 2017, 228,558 in 2018, 478,150 in 2019, and 338,082 in the first half of 2020. However, the acceptance rate remains low at 41.5% in 2017, 26.6% in 2018, 29.9% in 2019, and 32.5% in the first half of 2020.

A bank official explained, "Many employees from large companies like Samsung Electronics visit asking if they can request an interest rate reduction, but they leave after being told it is impossible because they already receive preferential interest rates." He said, "This is one of the reasons for the low acceptance rate." He advised, "However, individuals using high-interest loans of 10% or 20% should definitely be aware of and use the right to request an interest rate reduction if their credit improves."