FSS Issues Consumer Alert 'Caution' on Card Companies' Revolving Payments
Confusion Due to Terms Like 'Minimum Payment'... "High-Interest Loans"
On the upcoming 14th, you need to pay last month's credit card bill, but your wallet is tight. When you open the credit card company's app, phrases like 'minimum payment' and 'partial payment' catch your eye. You click as if hypnotized and then realize it's called 'revolving.' Somehow, it seems like it could ease the burden of the card payment.
As such revolving advertisements by credit card companies that confuse customers have increased, the Financial Supervisory Service issued a consumer alert of 'caution.' The investigation found that financial consumers do not fully understand revolving and that there were advertising cases that could confuse it with other services.
Average fee rate 16.7%... The trap of revolving
Revolving is a credit card payment method where if you pay part of the credit card bill, the remainder is carried over to the next month, and interest is charged on the carried-over amount. While subscribing to revolving can relieve the burden of paying the entire credit card bill at once, you have to bear high fees. As of the end of last month, the revolving usage fee rate (interest rate) averaged 16.7%.
Also, the repayment burden can increase depending on the 'contracted payment ratio' set by the consumer. Since only the contracted payment ratio amount is paid and the rest is carried over, if the ratio is set low, revolving is likely to continue for several months. Moreover, if the balance is below the contracted payment ratio in that month, it is automatically treated as delinquent, causing the principal and interest burden to increase sharply.
For example, if the contracted payment ratio is set at 30% and the card usage amount is 3 million KRW monthly, the carried-over debt balance increases from 2.1 million KRW → 3.57 million KRW → 4.6 million KRW.
Since revolving is a high-interest loan-type contract, long-term use can negatively affect credit ratings. In a situation where the principal has increased due to continuous revolving and the revolving is no longer extended due to a low credit rating, there is a risk of having to repay the accumulated principal and fees all at once.
An official from the Financial Supervisory Service said, "When using revolving, the phrase 'the amount scheduled for payment this month is carried over to the next month' is often used, but in fact, that part is a loan from the credit card company," and emphasized, "It is advisable to use the contracted payment ratio at the minimum payment level only temporarily, and from the next month, increase the contracted payment ratio to reduce the carried-over amount and lower the debt burden."
Revolving balance at a record high of 7.5 trillion KRW... Vulnerable borrowers increasing
Recently, despite high interest rates, the revolving balance has reached a record high, requiring caution. According to the Financial Supervisory Service, the revolving balance sharply increased from 6.1 trillion KRW at the end of 2021 to 7.3 trillion KRW at the end of 2022, and to 7.5 trillion KRW by the end of October this year.
In particular, revolving usage is increasing among vulnerable borrowers such as young people in their 20s and elderly people aged 60 and over. The revolving balance of people in their 20s, which was 305.2 billion KRW at the end of 2017, increased to 564 billion KRW by the end of March this year. The revolving balance for those aged 60 and over also rose from 287.8 billion KRW to 625 billion KRW during the same period.
As the repayment burden increases due to high interest rates, the revolving delinquency rate is also rising. As of the first quarter of this year, the delinquency rate of seven major credit card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana Card) averaged 2.38%, worsening by nearly 1 percentage point compared to 1.55% in the same period last year.
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