"Finding Cheaper Interest Rates May Be Difficult" Reasons for Doubts About Debt Refinancing Loans

One-Stop Debt Consolidation Loan Service Launches on the 31st
Credit Loan Rates Depend on Main Bank Performance
"If You Have a Main Bank, It Will Be Hard to Find a Cheaper Rate"

[Image source=Yonhap News]

"People who have a primary bank are likely to find it difficult to get a cheaper interest rate."

On the 31st, a one-stop refinancing loan service was launched to allow existing credit loans to be immediately switched to cheaper interest rates. However, the expectations of the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) are not very high. Considering the characteristics of credit loans, they believe that financial consumers with a primary bank are unlikely to find lower interest rates than their existing loans and switch.

The apps that support one-stop refinancing loans include Naver Pay, Bank Salad, Kakao Pay, Toss, and Finda. Through these platforms, users can check their existing credit loans via MyData, compare loan conditions from various financial companies, and then move to the selected financial company's app to refinance their loan.

Until now, the five major banks, which had kept their distance from these loan interest rate comparison apps, are now participating in large numbers with the goal of lowering loan interest rates for financial consumers through the one-stop refinancing loan service. However, commercial banks expressed doubts about how much consumers can actually reduce their interest rates through this service.

A representative from a commercial bank said, "Having a high annual income and a high credit score does not automatically guarantee cheaper loan interest rates from every bank. Credit loan interest rates are most significantly influenced by the transaction history with the respective bank, so the possibility of getting a loan at a lower interest rate from a bank other than the primary bank is low."

In the case of mortgage loans or jeonse deposit loans, there is little difference based on credit rating, so competition among banks is possible through adjustments in additional interest rates. However, credit loan interest rates are different. Each bank uses an internal system to grade the borrower's credit rating, and there is a significant difference in interest rates between each grade. According to the disclosure by the Korea Federation of Banks (based on new loan amounts from the five major banks in April), the interest rate difference between the highest grade (951-1000 points) and the lowest grade (600 points or below) is up to 0.5 percentage points for mortgage loans, whereas for credit loans, the difference can be as much as 6 percentage points.

The most important condition for receiving a high grade is the "transaction history." Another commercial bank official explained, "Under the same conditions, the credit rating given by the primary bank with records such as deposit amounts, subscription to deposit and loan products, salary account, and card statements is the highest and the interest is relatively low. Even a full-time housewife can receive a grade 1 if they have a large deposit in the bank's parking account, while someone working at a large company may receive a grade 3 or 4 if they have no transaction history with that bank."

Among commercial banks, some are launching or preparing dedicated products in line with the launch of the one-stop refinancing loan service. However, the reason they do not significantly lower interest rates compared to existing loan products and show lukewarm attitudes is due to concerns about discrimination against existing borrowers.

Another commercial bank official said, "Offering cheaper interest rates to those who refinance would give the impression of a loss from the perspective of long-term existing borrowers. While people generally do not complain much if savings or fixed deposit rates are slightly higher for others, loan interest rates provoke strong backlash if one's rate is higher than others', so banks are cautious."