Warning signs have been triggered for card loans, known as a quick cash source for ordinary people. Cases of borrowers defaulting on card debt or facing the risk of default and switching to other products are rapidly increasing. Recently, even card loan interest rates have been rising again, increasing the likelihood of card loan defaults.
According to the Credit Finance Association on the 23rd, the balance of long-term card loan refinancing (card loans) from domestic credit card companies (including BC Card member companies and NH Nonghyup Card) was approximately 1.3416 trillion KRW as of May. This is a 37.8% increase compared to the same month last year (973.7 billion KRW).
Card loan refinancing is a system that allows borrowers who have defaulted or are at risk of defaulting on card loans to switch their debt to other products. It encourages repayment by refinancing through other loan products or specialized loans for middle- and low-credit borrowers such as the Sunshine Loan. Although it does not fall under non-performing loans (NPLs), it is classified as high risk because borrowers accept credit rating downgrades to refinance.
The balance of card loan refinancing in the domestic card industry was about 929.1 billion KRW as of January last year but surpassed 1 trillion KRW by the end of the year (1.046 trillion KRW). A financial industry official said, "The fact that many people are switching loans due to the risk of default means that the payment ability of ordinary people has weakened."
The delinquency rate on card loans is also rapidly rising. According to data submitted by the Financial Supervisory Service to Choi Seung-jae, a member of the National Assembly’s Political Affairs Committee from the People Power Party, as of the end of the first quarter, the delinquent amount on card loans from seven major card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana) reached 760 billion KRW, with a delinquency rate of 2.13%. This shows an upward trend compared to the same period last year (delinquent amount 570 billion KRW, delinquency rate 1.69%).
In particular, revolving credit services show increases in revolving balances, delinquent amounts, and delinquency rates. As of the end of the first quarter, the revolving balance, delinquent amount, and delinquency rate were 7.34 trillion KRW, 150 billion KRW, and 2.38%, respectively, showing a significant increase compared to the same period last year (6.4 trillion KRW, 100 billion KRW, 1.55%). Even revolving services, which allow partial repayment of the payment amount with the remainder carried over due to liquidity shortages, are experiencing a rapid increase in delinquencies.
The industry expects this situation to continue for some time. Card loan interest rates are also rising again. The card loan interest rate of the seven major card companies, which peaked at 15.06% at the end of last year, fell to the high 13% range by April but rose again to 14.12% in May. Industry analysts attribute this to loan demand concentrating as savings banks, classified as loan channels for ordinary people along with card companies, have started managing soundness.
It is also concerning that upward pressure on interest rates remains. According to the Korea Financial Investment Association, the interest rate on 3-year asset-backed securities (AA+) fell from the 5% range in early January to about 3.8% at the end of April but has since continued to rise, recording 4.243% as of the day before. Since credit finance companies rely on asset-backed securities for 60-70% of their funding, bond interest rate increases are reflected in card loan interest rates about three months later.
Experts also warn of the risk of defaults spreading to card companies. Professor Ha Jun-kyung of Hanyang University’s Department of Economics said, "The current situation will not escalate to a crisis level, but there is some concern about additional card loan defaults," adding, "Especially if card loans become inaccessible, borrowers may turn to illegal private loans."
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