July Legal Maximum Interest Rate Reduction
High Interest Rates Above 20% Disappear
Meanwhile, Average Interest Rates Rise
Household Loan Restrictions and Interest Rate Increases
Expected to Sustain Upward Trend
[Asia Economy Reporter Ki Ha-young] Although the legal maximum interest rate reduction has eliminated the 20% high interest rates on card loans (long-term card loans), the average interest rate is rising. With the possibility of additional rate hikes within the year and the financial authorities tightening household loan regulations, a chain increase in card loan interest rates has become inevitable. The interest burden on real demand borrowers who urgently need funds and vulnerable groups who mainly use card loans is expected to increase further.
According to the disclosure by the Credit Finance Association on the 12th, as of the end of August, among the seven specialized card companies including Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, and Hana, there were no new users of card loans with interest rates exceeding 20%. This means that one month after the legal maximum interest rate was lowered to 20% in July, users with interest rates exceeding 20% disappeared. In the first quarter alone, the proportion of card loan users with rates exceeding 20% reached up to 23.38% depending on the card company.
However, the proportion of card loan users with interest rates between 18% and 20% increased. Samsung Card had 35.81% of its total card loan users in the 18-20% interest rate range. Lotte Card also had a relatively high proportion at 33.44%. Other card companies, except Shinhan and Hana Card, recorded proportions in the mid-20% range.
Due to the reduction of the legal maximum interest rate, the 20% high interest rates disappeared, but the average interest rate on card loans is on the rise. As of the end of August, the average interest rate based on the standard grade of the seven specialized card companies was recorded at 12.54% to 15.55% per annum. This is an increase of 0.12 percentage points at the lower end and 1.59 percentage points at the upper end compared to the end of July (12.66% to 13.96% per annum). The average interest rate of the seven companies rose by 0.39 percentage points to 13.49% in just one month. Compared to the end of January this year, it increased by 0.8 percentage points.
By card company, Lotte Card saw the highest increase of 2.2 percentage points in one month, followed by Woori Card (13.80%), Samsung Card (13.60%), KB Kookmin Card (13.49%), Hyundai Card (12.80%), and Hana Card (12.68%). Shinhan Card had the lowest average card loan interest rate among the seven card companies at 12.54%.
The card loan interest rates are also expected to rise in the second half of the year. This is because the Bank of Korea is considering another rate hike within the year, and the financial authorities are strengthening their stance on curbing household loans. An industry official said, "If interest rates rise, the funding cost will increase, inevitably affecting card loan interest rates," adding, "In response to the authorities' request to manage household loans, card companies are raising card loan interest rates or reducing limits, thereby reducing the overall scale of card loans."
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