[20s Who Don't Repay Debt] ① "Can't Even Pay 8,000 Won Monthly Interest"... The Result of 'Unplanned Loans'

Delinquency Rate on Small Livelihood Loans Highest Among People in Their 20s
22 out of 100 Can't Even Pay 8,000 Won Monthly Interest
The Problem Is Borrowing First Without a Clear Repayment Plan

On the 27th, citizens visiting the Jung-gu Central Microfinance Integrated Support Center in Seoul applied for loans from a small living expense loan product offering up to 1 million won with an annual interest rate of up to 15.9%. Photo by Kang Jin-hyung aymsdream@

Jimin Park (25) graduated from a regional vocational college three years ago during the COVID-19 pandemic. It was a time when finding a job was nearly impossible. With the thought of "just until I find a job...", she drifted between part-time jobs at convenience stores, factories, and barbecue restaurants. Park said, "At first, I asked my mother for help, but since the household was struggling and the job search period became longer than expected, I am now holding on by myself."

Her part-time wages were far from enough to cover rent, utilities, living expenses, and interest on existing loans. She had to resolve the overdue rent immediately. As soon as 500,000 won was deposited into her account through a small living expense loan, she transferred it directly to her landlord's account. Park said, "I secured a place to sleep, but I feel overwhelmed about how to manage my life going forward," adding, "I am looking into other loans."

Interest Nonpayment Rate Among Those in Their 20s Overwhelms Other Age Groups

The small living expense loan system provides emergency funds of up to 1 million won at once to low-income, low-credit individuals. Nine out of ten people who visit counseling centers belong to the bottom 10% in credit scores. According to data received by Kim Sung-joo, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, from the Korea Inclusive Finance Agency, a total of 39 billion won was disbursed over four months (from March to June).

Of this, those aged 20 and under borrowed 5.6 billion won. Compared to the 9 billion won borrowed by those in their 30s and 40s respectively, the amount itself is smaller. However, the interest nonpayment rate among those in their 20s overwhelms other age groups. This can be seen by looking at the interest payment status for loans executed from March to May.

As of early July, the interest nonpayment rate for those in their 20s reached 21.7%, much higher than 15.5% for those in their 30s and 11% for those in their 40s. The average small living expense loan amount for those in their 20s is 610,000 won. Applying an interest rate of 15.9%, the monthly interest is just over 8,000 won. Those in their 20s are in a situation where they cannot even pay the interest of 8,000 won, let alone the principal, resulting in delinquency.

Why Those in Their 20s Even Fall Behind on Monthly Interest of 8,000 Won

What is the reason low-income people in their 20s delay paying even the 8,000 won interest? A lawyer specializing in personal rehabilitation called loans taken by those in their 20s "unplanned loans." He said, "The money borrowed by those in their 20s is small amounts like pocket money or student loans, but they tend to borrow first without a clear way to repay the debt," adding, "They should borrow money after considering their income and expenses and making a repayment plan, but they lack awareness of this process, which easily leads to becoming credit delinquents."

An official from the Korea Inclusive Finance Agency also said, "It is presumed that many people in their 20s do not have a main income from a fixed job compared to those in their 30s and older, which is why they cannot pay interest." Although some earn money through part-time or daily jobs, the instability leads to a mindset of paying back when they have money and not when they don't.

Those in their 20s without proper income are thin filers with no financial transaction records, making it difficult to get loans from primary financial institutions. It is fortunate if they can connect with policy products like small living expense loans, but once they turn to secondary financial institutions, problems begin. Due to high interest rates, some resort to rolling over debts with credit card cash advances. Once caught in this trap, credit ratings drop, interest rates rise, and debts increase. This is why the number of people in their 20s who do not repay debts is increasing.