Continued Decline? "Bond Market Uncertainty Still High"
The auto installment loan interest rates of major credit card companies have shown a gradual decline, dropping to the lower 5% range. This is interpreted as a delayed reflection of the downward trend in funding costs.
According to the Credit Finance Association on the 14th, the auto installment loan interest rates of six major credit card companies?Shinhan, Samsung, KB Kookmin, Hana, Woori, and Lotte?range from 5.8% to 9.2% (based on a Hyundai Grandeur, 30% down payment, 36-month loan). This marks the first time this year that rates have entered the 5% range. Compared to the beginning of the year, when the upper limit was in the 11% range and the lower limit was in the 7% range, the rates have dropped by about 2 percentage points.
For a Grandeur priced at 37.16 million KRW (30% down payment, 36 months), the total interest amount (over 36 months) is 2.77 million KRW at 6.7%, 2.35 million KRW at 5.7%, and 1.93 million KRW at 4.7%. Since the principal and interest are repaid simultaneously, calculating the simple monthly interest burden is complicated, but dividing by 36 months, a 2 percentage point drop in the interest rate reduces the monthly burden by about 23,000 KRW.
The auto installment loan interest rates of capital companies, which had been soaring higher than those of credit card companies, are also calming down somewhat. While some still show double-digit upper limits, some companies have entered the lower 5% range. Under the same criteria, Hyundai Capital’s rate range is 5.7% to 10%. Considering that the average actual rate in the fourth quarter of last year was 5.27%, it appears to be returning to previous levels. However, BNK Capital (10.1%?12.7%) and Meritz Capital (7.3%?11.3%) still show double-digit interest rates. Lotte Capital’s lower limit was 5.41%, the lowest among major credit card and capital companies, but its upper limit was 13.19%, the highest.
The industry views this as a delayed effect of the stabilization of bond market interest rates at the beginning of the year. According to the Bond Information Center of the Korea Financial Investment Association, the interest rate on credit finance specialized bonds (AA+, 3-year maturity), which are the main funding sources for credit card and capital companies, was 4.251% as of the 10th. This is about 2 percentage points lower compared to early November last year, when it surged to 6.088% due to bond market tightening.
Although the credit finance bond interest rates have fallen compared to the beginning of the year, they have recently shown an upward trend with fluctuations continuing, so it is expected that auto installment loan interest rates will not continue to decline indefinitely. In fact, the credit finance bond rate hit a yearly low of 4.044% on the 14th of last month but has since rebounded. On the 8th, it even rose to 4.400%. On the 7th (local time), Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), expressed a somewhat hawkish stance at the Senate Banking Committee hearing, stating that "the ultimate interest rate in the U.S. is likely to be higher than previously projected by policymakers," causing volatility in the domestic bond market.
A credit finance industry official explained, "Although rates have dropped significantly compared to the beginning of the year, there is still a gap compared to the mid-2% range seen in early to mid-last year," adding, "Since market uncertainties continue, we expect no major fluctuations from recent levels for the time being this year."
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