Yeonjeonchae Hits Lowest in 7 Months... Is the Cold Wave in Car Financing Easing?

Dropped to 4.2% Range... 30%↓ This Year
Bond Market Chill Eases... Card Companies Increase Issuance

[Asia Economy Reporter Minwoo Lee] The interest rates on specialized credit finance bonds, a major funding channel for credit card companies and capital companies, appear to be stabilizing. Expectations are growing that the soaring auto installment loan rates may also stabilize.

According to the Bond Information Center of the Korea Financial Investment Association on the 3rd, the interest rate on specialized credit finance bonds (AA+, 3-year maturity) stood at 4.252% as of the 1st. This is the lowest level in about seven months since August 2 last year (4.214%). It has already dropped by more than 1.2 percentage points this year alone. Compared to the record high of 6.088% on November 7 last year, the highest since statistics began in 2010, it has fallen by more than 30%. Although still higher than the mid-2% range at the beginning of last year, the previously concerning upward trend is considered to have somewhat eased.

The bond market, which had been somewhat turbulent, is warming up again, making funding somewhat easier. As expectations spread that the rise in domestic and foreign benchmark interest rates will end due to slowing inflation in the U.S., the bond market is regaining momentum. Additionally, as commercial banks have refrained from issuing bonds in deference to the government, a spillover effect has led to increased investor interest in bonds issued by credit finance companies. This is reflected in the consecutive bond issuances by Lotte Card (?110 billion), Samsung Card (?130 billion), Shinhan Card (?120 billion), and Hyundai Card (?20 billion) since early last month.

With the improved funding situation for credit finance companies, expectations are rising that the previously soaring auto installment loan rates will decline. According to the Credit Finance Association, as of the previous day, the auto installment loan interest rate range for six major card companies?Shinhan, Samsung, KB Kookmin, Hana, Woori, and Lotte?was 7.3% to 10.5% (based on Hyundai Grandeur, 30% cash purchase ratio, 36-month loan period). This shows a slight decrease from the upper end of around 11% at the beginning of the year. It is anticipated that as recently raised funds begin to be reflected in actual products, installment loan rates may decrease further. However, some view that the maturity of card bonds that must be repaid within the year could still pose a burden.

Nevertheless, some have already taken aggressive marketing steps. Hyundai Capital is a representative example. Hyundai Motor and Kia have unusually launched a variable interest rate installment program in partnership with Hyundai Capital, their exclusive financial company within the group. This move is seen as a measure to prevent a decline in new car contracts due to the burden of high interest rates. Furthermore, it can be interpreted as a strategy to seize an opportunity to regain market share by capitalizing on the somewhat cautious operational stance adopted this year by card companies that had aggressively entered the auto finance sector.