High Interest Rates Boost P2P Loan Boom... Cumulative Loans Surpass 6 Trillion Won

1 Trillion Increase in Three Months
Rise in Personal Credit Loan Share

[Asia Economy Reporter Kwon Hyun-ji] Last month, the cumulative loan amount in online investment-linked finance (P2P finance) exceeded 6 trillion won, marking an all-time high. This is attributed to vulnerable borrowers flocking to mid-interest loans amid soaring loan interest rates and reduced lending from secondary financial institutions.

According to the Online Investment-linked Finance Central Record Management Institution (P2P Center) on the 9th, the cumulative loan amount of 49 online investment-linked finance companies registered with the P2P Center reached 6.1009 trillion won as of last month. This figure more than doubled compared to one year ago (2.7855 trillion won). The cumulative loan amount surpassed 5 trillion won as of October last year, and it has grown sharply by about 1 trillion won in just three months. The outstanding loan balance also increased by 136.6 billion won compared to a year ago, reaching 1.3155 trillion won as of last month.

Among these, the increase in personal credit loans was particularly notable. As of last month, personal credit loans accounted for 13% of the total outstanding loan balance, up 2.0 percentage points from 11% a year ago. The outstanding personal credit loans of three representative online investment-linked finance companies handling personal credit loans (PeopleFund, Lendit, 8 Percent) amounted to 141.1 billion won, an increase of 29.4 billion won compared to 111.7 billion won in January last year. In contrast, the proportions of real estate secured loans and real estate project financing (PF) (based on outstanding loan balance) shrank from 70% and 7% respectively in January last year to 69% and 5% in January this year.

P2P finance refers to a service that connects investors and borrowers through an online platform. In the case of personal credit loans, online investment-linked finance companies calculate loan interest rates considering the borrower's repayment ability and creditworthiness, and lend funds raised from investors.

The recent significant growth of P2P finance is due to increased demand for mid-interest loans as loan interest rates surged last year. Borrowers with poor credit who were rejected by primary financial institutions but find high-interest loans close to 20% per annum burdensome are turning to P2P finance. An industry insider explained, “The market is expanding as borrowers move to P2P finance to receive more reasonable interest rates and limits.” P2P finance assesses repayment ability based on various alternative information such as communication records and shopping payment history in addition to income, making it advantageous for young adults and housewives who have sound financial status but low credit scores due to limited financial history. The significant reduction in secondary financial institution loans due to household loan volume regulations and deteriorating profitability in the second half of last year is also one of the factors that boosted the scale of P2P finance.

The industry expects this growth trend to continue. Institutional investment, which was previously impossible, will be possible from this year, and the investment limit for individual investors is expected to increase from 30 million won to 50 million won, signaling a green light for securing funds. An online investment-linked finance industry official said, “As regulations begin to ease, the environment is being created for the market to grow because the scale of fund management can be increased in line with the rising loan demand.”