[Ki Ha-young's Life Card] DSR Applied to Card Loans... Check Your Loan Limits

Starting This Year, Card Loans Included in Weekly DSR
Maximum Maturity for Lump-Sum Repayment Agreements Limited to 3 Years
If You Have Loan Plans, Be Sure to Review Carefully

Is there anyone these days without at least one credit card? In modern society, anyone can have a card if they want. Credit cards have brought unparalleled convenience to daily life. Now, wherever you go, you can easily see people paying with credit cards or smartphones. As demand has increased, cards with various benefits are being released almost daily. In response, Asia Economy delivers diverse stories related to cards?an inseparable part of our consumer life?through its weekly 'Cards in Daily Life' section, including introductions to new cards, industry behind-the-scenes, and guides for card beginners.

From this year, the Debt Service Ratio (DSR) will also apply to long-term card loans (card loans). This is a measure to curb the rising household debt. If you have loan plans for the new year, carefully considering this will be the first step to borrowing the necessary amount without any issues.

DSR refers to the ratio of the total principal and interest repayment amount of all financial debts to the borrower's income. It is calculated by dividing the annual total debt principal and interest repayment amount by the annual income. When borrowing from commercial banks, the ratio is 40%, and for card companies, it is 50%. For example, if a borrower with an annual salary of 40 million KRW is subject to DSR regulations, they can only borrow up to 16 million KRW per year in bank loans. Even if they take additional loans from secondary financial institutions, the principal and interest limit is 20 million KRW.

Until now, card loans were not included in the borrower's DSR. From this year, card loans will be included in the borrower-level DSR if the total loan amount exceeds 200 million KRW. From July, the scope will expand to include borrowers with loans exceeding 100 million KRW.

For instance, if office worker A with an annual income of 40 million KRW applies for a card loan of 8 million KRW (annual interest rate 13%, 2-year maturity, equal principal repayment), before the borrower-level DSR was applied, A could borrow up to 8 million KRW through the card loan.

However, A also has a mortgage loan of 180 million KRW in a non-regulated area (interest rate 2.5%, 30-year maturity, equal principal repayment) and a credit loan of 25 million KRW (interest rate 3.0%, lump-sum repayment at maturity). In this case, with card loans included in the borrower-level DSR, A can only receive a card loan within 6.36 million KRW to keep the DSR under 50%.

When applying borrower-level DSR to card loans, the maturity is determined based on the 'contractual maturity' stated in the actual loan agreement. The contractual maturity for lump-sum repayment card loans is limited to a maximum of 3 years. This is to prevent the loophole of extending card loan maturities to increase loan limits. However, for installment repayments, an incentive is given by recognizing up to 5 years.

Card loans are high-interest products with an average rate of 14%. However, despite having mortgage or credit loans, they have served as a loan channel for ordinary people who need quick cash. With this new measure, there are concerns that low-income individuals such as ordinary citizens and small business owners will find it practically difficult to obtain card loans, gradually reducing the places where ordinary people can borrow within the formal financial system. While borrowing within a repayable range is appropriate, more delicate policy design is necessary.