[Youth Debt] "Please Tell Me This Interest Rate Is a Dream" Giving Up Independence Due to Jeonse Loans

Harsh Interest Rate Hikes Faced by Young Adults
20s Falling into Default Due to Small Loans

"I have to take the hellish subway from dawn, and commuting takes an hour and a half each way, but I can't help it.
I think I’ll have to move back to my parents’ house in Incheon next year.
The interest on my jeonse loan has risen so much that even though I’m earning money, I can’t comfortably order a whole chicken on weekends."

Lee Eunji (24), who moved into a jeonse house in Seoul last May, called her parents a few days ago after receiving a notification about the interest on her jeonse loan. She said, "The interest, which was 100,000 won per month at first, has now risen to 300,000 won. I’m in my second year as an office worker, and my take-home pay after taxes is about 1.7 million won, but life is getting harder. I told my parents that I would move back home when my lease expires next year."

Monthly salary 1.7 million won but paying 300,000 won in jeonse loan interest... "I give up independence"

When Lee declared her independence, the interest rate on jeonse loans for young people at commercial banks was 1.88% per annum. She took out a 70 million won loan and paid 109,000 won in interest every month for the first six months. At that time, the interest rate was low, and she saw many friends getting loans at around 1%, and she knew the interest rate was variable and changed every six months. Lee said, "Back then, I thought the interest wouldn’t rise that much, but last week I got a message from the bank saying the rate had risen to 5.04%, and I thought it must be a dream. My company manager said, 'Debt is a permanent friend of office workers,' and I guess this is what it means to become an adult," sighing deeply.

One of the biggest concerns for young people during the interest rate hike period is the interest on jeonse loans. As of the 23rd, the interest rates on jeonse loans at the five major banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) have risen to between 5.25% and 7.36%. On the 24th, the Bank of Korea raised the base interest rate again, making it highly likely that jeonse loan interest rates will rise further.

According to the Financial Supervisory Service and others, as of the end of August, 835,799 people in their 20s and 30s had taken out jeonse loans, accounting for 61% of the total. Looking at the outstanding balance of jeonse loans, as of the end of August, the outstanding balance for people in their 20s and 30s was 99 trillion won, about 58% of the total balance. This suggests that the interest burden on young people has ballooned like a snowball.

More young people are giving up on jeonse and devising 'monthly rent conversion strategies.' Han Seonyul (27) switched to a semi-jeonse contract immediately after her jeonse lease expired earlier this month. She renewed her contract for a one-room apartment worth 160 million won in jeonse with a deposit of 50 million won and a monthly rent of 400,000 won. Han said, "I thought about filling the four-year jeonse, but since jeonse prices have been falling recently and jeonse loan interest rates have risen above 7%, I changed my mind. I heard that special fixed deposits at secondary financial institutions offer interest rates of around 10%, so if I put the 110 million won I saved from the jeonse deposit there, I think it would cover the monthly rent and maintenance fees for the one-room apartment and still have some left over."

Borrowed 4 million won from an internet bank to invest in crypto but only suffered losses... all that remains is the increased interest rate

The investment risk for people in their 20s has also increased. Kim Jinwoo (25), who took out a personal loan from an internet bank in January this year to invest in cryptocurrency, said, "I thought I had to make a profit even if I had to borrow money, so right after I was discharged in January, I borrowed 4 million won from an internet bank at an interest rate of 4.75% and put it into crypto." Kim was introduced to a method called '1x short hedging' by a friend. He tried investing, thinking it was a loss he could accept since it promised principal protection and fixed interest, but he is still experiencing losses. The only thing that has increased in the meantime is the interest rate, which rose to 6.65%. Kim said, "I’m working part-time at a convenience store, and when I get paid, I’ll pay off the loan first."

Meanwhile, among people in their 20s who borrowed money from banks and others but failed to repay on time, 4 out of 10 became financial debt defaulters because they could not repay debts of 5 million won or less. Due to small loans, they are registered as defaulters and suffer credit disadvantages. According to data on 'Financial Debt Defaulters' submitted by the Credit Information Service to Jin Sunmi, a member of the Democratic Party, as of the end of June, among the 84,300 defaulters in their 20s, 35,200 (41.8%) had loans of 5 million won or less. 17,900 (21.2%) owed between 5 million and 10 million won, and 4,300 (5.1%) owed more than 50 million won.