"Interest Rates Through the Roof... Surge in 'Rehabilitation Applications' Among 20s Leading Coin Boom" [Interest Poor Era]

Bank Interest Rates Up 1.65%P Compared to 2 Years Ago
Impact of Cryptocurrency Market Crash and Luna Incident
Struggling to Pay Interest, Let Alone Repay Principal
Annual Average of 800 More Rehabilitation Filings

[Asia Economy Reporters Buaeri Bu, Sim Nayoung, Lee Minwoo] #Seo Youngsoo (28, pseudonym) is currently undergoing personal rehabilitation procedures after suffering significant losses due to the recent stock market crash. His attempt to invest in stocks instead of the 'neomsa-byeok' (an insurmountable fourth-dimensional wall) of real estate backfired. Initially, he had borrowed about 480 million KRW from commercial banks and loan companies, but with rising interest rates, the interest alone reached 100 million KRW at the time of his personal rehabilitation application.

#Kim Seonhoo (25, pseudonym), who had used a negative balance account to borrow 60 million KRW for cryptocurrency investment, is in a similar situation. After quitting his job, he lost the capacity to repay his debts, leading to repeated delinquencies. Moreover, the interest rate increased from 2.7% to 4.3%, causing his monthly interest payments to rise from about 130,000 KRW to 210,000 KRW, making it even harder to manage. Kim is now seeking personal rehabilitation counseling.

Increase in ‘Interest Poor’ People in Their 20s

According to the legal community on the 16th, since the COVID-19 pandemic, there has been a rise in young people who jumped into stock and cryptocurrency investments hoping for a booming market but are now unable to bear the interest burden and are applying for personal rehabilitation. Lawyers agree that inquiries about personal rehabilitation have increased especially as the virtual asset market has stagnated and incidents like the Luna crisis have occurred. Kim Bonggyu, a personal rehabilitation and bankruptcy specialist at Moon & Kim Law Office, stated, "Most of the debts of people in their 20s undergoing personal rehabilitation procedures include debts incurred due to stocks and cryptocurrencies."

The number of personal rehabilitation filings among people in their 20s has been increasing every year. According to ‘Rehabilitation and Bankruptcy Status’ obtained by Jin Sunmi, a member of the National Assembly’s Political Affairs Committee from the Democratic Party of Korea, through the Supreme Court, the number of personal rehabilitation filings for those aged 20 to 29 was 10,307 in 2019, 11,108 in 2020, and 11,907 in 2021, increasing by an average of 800 cases annually. As the number of personal rehabilitation applications due to debts from cryptocurrency and stock investments rises, a Seoul Rehabilitation Court official stated, "A task force (TF) has been formed to establish processing standards related to cryptocurrencies and to devise countermeasures."

In particular, the rising interest rates have also contributed to this phenomenon. As the asset market shrinks, the interest burden, which was expected to be manageable through investment gains, has grown, encouraging more rehabilitation applications. Jin Sunmi said, "With further interest rate hikes expected, the debt burden on young people is likely to increase day by day," adding, "Detailed support from government departments is necessary so that young people can reduce their debt burden and reintegrate into society."

How Much Have Interest Rates Increased?

[Image source=Yonhap News]

How much have bank interest rates risen over the past year? Looking at the credit loan interest rates of the five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) as of the 15th, they ranged from 3.599% to 5.44%. Compared to June last year (2.0% to 4.73%), the lower and upper bounds of the interest rates increased by 1.599 percentage points (p) and 0.71 p respectively. Compared to two years ago (1.94% to 4.46%), the gap widened further, rising by 1.659 p and 0.98 p.

Jin Hayoung (28, pseudonym), who took out a 100 million KRW credit loan from a commercial bank for cryptocurrency investment, became an ‘interest poor’ person after two years when applying for a loan extension. When she first borrowed in June 2020, the interest rate was 2.64%, and the monthly interest was about 220,000 KRW, but upon extension, she was notified that the interest rate had risen to 4.31%. Consequently, her monthly interest increased to 360,000 KRW.

Jin said, "The interest has risen so much that I want to pay off the debt first, but with the cryptocurrency market crashing, I am barely able to pay the interest," adding, "I receive notifications of interest rate changes every six months, which is terrifying." If the Bank of Korea raises the base interest rate four more times by the end of this year, the interest rate Jin will be notified of in December will be 5.31%, and the interest cost will reach 440,000 KRW, doubling from when she first took out the loan.

Economic experts advise caution as rapid interest rate hikes could exacerbate economic recession. Kim Youngik, a professor at Sogang University Graduate School of Economics, explained, "Considering that monetary policy does not immediately affect consumption and investment but has a lagged effect, if interest rates are sharply raised following the U.S. while the economy is already deteriorating, the recession will worsen," adding, "As the stock market bubble deflates, the real estate market will also be affected by interest rates starting next year, so domestic base rate hikes should be approached cautiously."