'Geupjeon Changu' Card Loan Halved in 2 Years... "Interest Rate Reduction Should Be Considered"

Card Loan Handling Amount in Q4 Last Year 1.9749 Trillion
Lotte·Hyundai Down 77%, Woori Down 73%

[Asia Economy Reporter Hyunji Kwon] The amount of card loans (long-term card loans), a quick cash source for ordinary people, has halved in two years. There are calls to lower card loan interest rates to prevent low-credit borrowers from turning to illegal private loans.

According to data submitted on the 12th by Rep. Choi Seung-jae of the People Power Party, a member of the National Assembly's Political Affairs Committee, from seven card companies including Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, and Hana Card, the new card loan amount for low-credit borrowers with a personal credit score of 700 or below (based on KCB) was 1.9749 trillion KRW in the fourth quarter of last year. This is a 43% decrease from 3.4814 trillion KRW in the first quarter of 2021. The card loan amount has steadily declined every quarter since the first quarter of last year (3.4525 trillion KRW).

The card companies with the largest decrease were Lotte and Hyundai Card. Their new card loan amounts, which were in the 400 billion KRW range in the second quarter of last year, dropped to around 90 billion KRW in the fourth quarter of the same year, a decrease of about 77%. Woori Card also fell from about 200 billion KRW to 50 billion KRW (a 73% decrease) during the same period, and Hana Card decreased by about 10%, from 190.2 billion KRW to 171.3 billion KRW.

The decline in card loan usage during this period is attributed to card loans being included under the Debt Service Ratio (DSR) regulations. Since July last year, financial authorities have limited borrowers with total loans exceeding 200 million KRW to an annual principal and interest repayment amount not exceeding 50% of their annual income. As a result, the use of short-term card loans such as cash advances has relatively increased instead of card loans. The rise in funding costs is also one of the factors reducing card loans for low-credit borrowers. Card companies do not have deposit functions and can only raise funds through asset-backed securities (ABS) issued by credit card companies and capital companies.

The problem is that as card loans become restricted, low-credit borrowers may turn to card revolving credit, cash services with relatively higher interest rates, or even illegal private loans. In fact, the revolving credit balance of nine card companies including Shinhan, Samsung, KB Kookmin, BC, Hyundai, Lotte, Woori, Hana, and NH Nonghyup Card reached 7.3574 trillion KRW as of the end of December last year, an increase of 1.2125 trillion KRW compared to the end of the previous year.

Rep. Choi pointed out, “Considering the decline in ABS interest rates and the increase in card companies' profits, a proactive review of lowering card loan interest rates is necessary.”