[Debt Diet] ① "Breaking Subscription" Borrowers Tightening Their Belts

[Asia Economy Reporter Bu Aeri] #Office worker Choi Byeol (41) recently canceled her subscription savings account, which she had been contributing to for 15 years, and started repaying her overdraft loan. When she first opened the overdraft account in 2020, the interest rate was in the high 2% range, but it has recently reached 7.29%, leading her to believe that eliminating the overdraft is the smartest financial strategy. Choi said, "I also canceled all my savings and installment savings last year," adding, "The interest from savings is just pocket change, and it doesn't seem like I can buy a house with that money, so reducing loan interest seems the right choice."

#Office worker Seo Sanghyuk (35) is in a similar situation. Seo recently put his entire performance bonus into his overdraft account. With interest rates rising from the 2% range to the high 6% range, he is fully focused on reducing the overdraft balance whenever he gets a lump sum. Seo said, "I considered other investment options, but I thought I couldn't guarantee returns as high as the increased overdraft interest."

In the second half of last year, some people planned to do 'Yetech' (savings + investment) by taking out loans due to high deposit interest rates, but the situation reversed within a few months. Although deposit interest rates have fallen, loan interest burdens remain, leading to the emergence of 'interest dieters' who evaluate whether repaying loans with accumulated savings or deposits is beneficial.

In fact, household loans in the banking sector have been declining for 13 consecutive months. According to financial authorities on the 3rd, the outstanding household loans at the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?stood at 688.6478 trillion won last month, down 3.8857 trillion won from the previous month. Compared to early last year, this is a decrease of 19.0417 trillion won. By loan type, mortgage loan balances slightly increased, but credit loan balances sharply decreased, maintaining an overall downward trend.

Mortgage loans increased slightly by 216.1 billion won to 513.3577 trillion won compared to the previous month, but credit loan balances decreased by 3.3516 trillion won to 115.6247 trillion won, resulting in an overall reduction in household loans. A banking industry official explained, "Even the increased mortgage loans should be considered effectively reduced when excluding group loans," adding, "We maintained mortgage loans, which generally have lower interest rates compared to credit loans, but the atmosphere has changed recently."

Especially, the trend of reducing credit loans centered on overdraft accounts has continued since last year. According to the Bankers Association disclosure, the average interest rates for credit loans at the five major banks ranged from 6.32% to 7.13%, and the average interest rates for credit limit loans (overdraft accounts) were between 6.65% and 7.04% (as of December last year). Compared to December 2020, both the upper and lower bounds of credit loans (2.53%?3.02%) and credit limit loans (3.08%?3.38%) have increased by about 4 percentage points over two years. A simulation of interest costs for an office worker who took out a 50 million won credit loan through one bank showed that monthly interest, which was 111,250 won in 2020, more than doubled to 252,083 won last year.

The expectation that loan interest rates will rise in the future also contributes to the interest diet trend. A banking industry official said, "Recently, banks have been lowering loan interest rates, but this applies only to new loans, and existing borrowers are more often linked to the base rate," adding, "Reducing interest costs is considered a long-term positive factor for households."