Interest Rates on Household Loans Eyeing Over 5% Again... Emergency Loans Leave Ordinary People in Distress

As the interest rates on credit finance bonds approach the 5% level, the sighs of vulnerable borrowers who use short- and long-term card loans (card loans and cash services), known as quick loan channels for ordinary people, are growing louder. The industry sees a high likelihood that borrower burdens will increase for the time being, given the accumulation of negative factors such as prolonged high interest rates and the abolition of bank bond issuance limits in the fourth quarter, which will raise card companies' funding costs.

According to the Korea Financial Investment Association on the 13th, the interest rate on 3-year AA+ rated credit finance bonds was recorded at 4.682% as of the previous day. This is about 28 basis points (1bp=0.01%) higher than early September (4.401%) about a month ago, and about 32 basis points higher than early August (4.363%).

Even this figure has somewhat come down. When the U.S. 10-year Treasury yield exceeded 4.8% on the 3rd, the credit finance bond yield also surged vertically to 4.883% (on the 4th). This interest rate level is similar to the level seen earlier this year when the 'Legoland incident' from last year continued.

As credit finance bond yields soar like this, the cost burden on credit finance companies (card and capital companies), which rely on bond issuance for about 70% of their funding, is increasing, and the upward trend in loan interest rates to compensate for this is also continuing. The average card loan interest rates of seven major domestic card companies (Shinhan, KB, Samsung, Hyundai, Lotte, Woori, Hana) in August reached 12.49?15.06%, with the upper end exceeding 15%.

The problem is that bond yields are likely to continue rising for the time being. Although they have recently fallen somewhat, the prolonged high interest rates mean that the U.S. 10-year Treasury yield remains at a high level, and the government has lifted the bank bond issuance limit regulation to prevent excessive competition for deposits among financial institutions and capital outflows like last year. If the issuance of highly rated bank bonds increases, the yields on relatively lower-rated bonds such as credit finance bonds and corporate bonds will inevitably rise further. About 46 trillion KRW worth of bank bonds are maturing in the fourth quarter of this year alone.

Such increases in bond and loan interest rates inevitably translate into burdens for vulnerable borrowers using card loans. Especially recently, as banks and savings banks reduce loan volumes for medium- and low-credit borrowers to manage soundness, loan demand is shifting to card companies and others. As of the end of August, the card loan balance of eight major card companies was 35.8635 trillion KRW, an increase of about 500 billion KRW compared to the previous month (35.3952 trillion KRW).

A financial industry official said, "Card company loan interest rates fluctuate depending on each company's marketing strategy, but fundamentally, they are structured to be linked to credit finance bond yields," adding, "When bond yields rise, loan interest rates inevitably follow with a time lag, so this trend is likely to continue for the time being."