'Hetsalron Maximum Limit 25 Million Won' Until the End of This Year... Increased Financial Support for Low-Credit Borrowers in the New Year

Expansion of Loan Limits Including Haetsalron
Relief from Increased Loan Interest Burden
Emergency Living Expense Loan of 1 Million Won Also Available

[Asia Economy Reporter Kwon Hyun-ji] As the interest burden on low-credit and vulnerable borrowers is expected to increase due to high interest rates in the new year, the government’s financial support is also accelerating. Along with the increase in loan limits for grassroots financial products such as Saessal Loan following last year, measures to reduce the interest burden caused by rising loan interest rates will be implemented. Measures to prevent excessive debt collection from debtors are also being promoted.

According to the financial sector on the 2nd, the Korea Inclusive Finance Agency will expand the Saessal Loan limit until the end of this year. Saessal Loan is a policy financial product for low-credit and vulnerable borrowers who find it difficult to get loans from the formal financial sector. Accordingly, the limits of the Worker Saessal Loan (KRW 15 million → KRW 20 million), Saessal Loan 15 (KRW 14 million → KRW 20 million), and Saessal Loan Bank (KRW 20 million → KRW 25 million), which were temporarily expanded last year, will be applied for an additional year until the end of the year.

At the same time, borrowers will be able to receive support for part or all of the increase in loan interest rates on these products. For the Worker Saessal Loan (annual income of KRW 35 million or less or credit score in the bottom 20% with annual income of KRW 45 million or less), the loan interest rate cap of 10.5% per annum will be raised by 1.0 percentage point to 11.5% this year, and the Korea Inclusive Finance Agency will bear 60% of the resulting interest increase. This is done by lowering the guarantee fee rate charged as a guarantee for the loan by up to 0.6 percentage points (when applying an 11.5% annual interest rate). The debtor’s interest increase burden is expected to be reduced to 0.4 percentage points.

Similarly, for Saessal Loan 15 (credit score in the bottom 20%) and the Special Guarantee for Lowest Credit Borrowers (credit score in the bottom 10%), whose loan interest rates will also increase by 1.0 percentage point, the Korea Inclusive Finance Agency plans to lower the guarantee fee rate by 1.0 percentage point to fully cover the increase in loan interest rates. This takes into account that these products target borrowers more vulnerable than those of the Worker Saessal Loan. The reduction in guarantee fee rates will be implemented in January after detailed consultations with financial companies.

An ‘Emergency Living Expense Loan’ that immediately loans up to KRW 1 million to low-credit delinquent borrowers will also be introduced in the first half of this year. Unlike existing grassroots finance, delinquent borrowers will also be able to use it.

Measures to ease the debt collection burden on debtors will also be implemented. The ‘Personal Delinquent Debt Purchase Fund,’ which allows borrowers who have defaulted on loans to apply for the purchase of delinquent bonds by the Korea Asset Management Corporation (KAMCO), will be extended for one year. As soon as KAMCO receives an application for bond purchase, financial companies must stop collection activities and take protective measures for debtors. The Delinquent Debt Purchase Fund was introduced in June 2020 to prevent individual debtors who lost income due to COVID-19 and could not repay loans from being subjected to harsh debt collection by private lenders or credit information companies.

The five major commercial banks (KB Kookmin, Shinhan, Woori, Shinhan, NH Nonghyup) will also waive prepayment penalties. Commercial banks currently waive prepayment fees when loans such as the Safe Conversion Loan are repaid earlier than the contract period, and they plan to expand this to apply to general household loans such as jeonse deposit loans and unsecured loans.

KAMCO is deeply establishing itself in the daily lives of ordinary people not only through corporate and financial restructuring but also by providing refinancing loans for low-credit borrowers.