Card Loan Interest Rates Near 15%... Are Emergency Funds for Ordinary People Becoming Unavailable?

Card Loan Interest Rates 12.1~14.94% in December Last Year
Average Increased by 0.7 Percentage Points Over 3 Months

Photo by Yonhap News

[Asia Economy Reporter Ki Ha-young] The interest rates on long-term card loans (card loans) have risen by nearly 1 percentage point over the past three months. As funding costs increase due to the rise in interest rates, card loan rates are expected to continue climbing. This has raised concerns that it will become increasingly difficult for middle- and low-credit borrowers to obtain loans.

According to the disclosure by the Korea Federation of Credit Finance Companies on the 22nd, as of the end of December last year, the average card loan interest rates (operating price) based on standard grades for seven major card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana Card) ranged from 12.1% to 14.94%. The average rate among the seven companies was 13.87%, up 0.7 percentage points from 13.17% in September three months earlier. However, it was slightly down by 0.01 percentage points compared to the previous month (13.88%).

Card loan interest rates have been on the rise since the second half of last year. This is due to the increase in market interest rates and the strengthening of household loan management by financial authorities. The average card loan rates for the seven companies rose from 13.17% in September to 13.58% in October and 13.88% in November.

The industry expects the average card loan interest rate to soon enter the 15% range. This is because the Bank of Korea raised the base interest rate earlier this month, returning rates to pre-COVID-19 levels and signaling further hikes. As the base rate increases, market interest rates rise, inevitably increasing funding costs for card loans, making it highly likely that card loan interest rates will also rise.

An industry official said, "When interest rates rise, funding costs increase, so card companies have no choice but to raise interest rates on loan products such as card loans. Card loans are widely used by middle- and low-credit borrowers who need urgent cash, but with rising interest rates and the inclusion of card loans in the borrower's total debt service ratio (DSR) from this year, it will become even more difficult for middle- and low-credit borrowers to borrow money."