'12-Month Interest-Free Installments' Disappear... Banks Introduce Small Appliance Loans [1mm Financial Talk]

Recently, amid the impact of high interest rates leading to a significant reduction in credit card companies' interest-free installment benefits, banks have attracted attention by introducing small loan products targeting home appliances. The strengths of these products include the stability of being a first-tier financial institution and relatively lower interest rates compared to card installments.

According to the financial sector on the 27th, Shinhan Bank recently partnered with Samsung Electronics to launch the 'Shinhan SOL Appliance Loan.' This product is a small loan available when purchasing Samsung Electronics home appliances through the appliance purchase platform 'SOL Appliance' within the Shinhan SOL Bank application.

The Shinhan SOL Appliance Loan, an exclusively non-face-to-face product, allows applicants to borrow from a minimum of 500,000 KRW up to a maximum of 5,000,000 KRW for purchasing home appliances. The interest rate starts at an annual 5.96%, and the loan term can be up to 5 years (60 months). Since it uses a principal installment repayment method, it effectively functions like an installment plan. Preferential interest rates are applied differentially based on transaction performance and credit rating.

This small loan product has gained attention because the interest-free installment benefits offered by credit card companies have been significantly reduced due to the high-interest-rate environment that has persisted for over two years. Before central banks worldwide, including the Bank of Korea, rapidly raised benchmark interest rates, around 2021 to 2022, credit card companies competitively offered benefits such as 12-month interest-free installments to expand their assets. However, as the high-interest-rate phase continued and funding costs increased, the interest-free benefits were greatly reduced.

According to the Bond Information Center of the Korea Financial Investment Association, the 3-year card bond (AA+) interest rate was very low at 2.410% in early January 2022 but approached the 5% range at 4.938% by the end of October last year. Although market interest rates have recently fallen to around 3.5~3.6% due to a decline in market rates, they still remain higher than during the low-interest-rate period. As a result, the interest-free benefits of the nine major credit card companies (Shinhan, KB, Samsung, Hyundai, Woori, Hana, BC, Lotte, NH Nonghyup) mostly last only 2 to 3 or 4 months.

Furthermore, according to the Korea Federation of Credit Finance Companies, the installment fee rates of these nine credit card companies range from 7.90% to 19.90% annually. This is why small loan products with a minimum annual interest rate of 5.96% are competitive. From the perspective of banks and appliance companies, there is the advantage of increasing customer acquisition. A Shinhan Bank official said, "We launched this product with Samsung Electronics for customers who need home appliances due to newlyweds or moving in but lack the purchasing power," adding, "Since the product was launched through cooperation, the product prices are relatively affordable, and the interest rates are not high, making it a worthwhile option to consider."