SEOUL, Dec. 21 (Korea Bizwire) — The financial regulator said Friday it will encourage banks to provide mid-rate policy loans worth 1 trillion won (US$886 million) to desperate borrowers from next year, as part of ongoing efforts to relieve their debt burdens.
About 3 million borrowers, who have no option but to borrow money from private lenders due to their poor credit scores, are expected to benefit from the move, the Financial Services Commission (FSC) said in a statement.
The maximum legal lending rate was lowered to 24 percent earlier this year from 27.9 percent in a move to ease financial burdens for desperate borrowers.
The policy loans will charge an interest rate of between 15 percent and 20 percent per annum, according to the FSC.
Financial authorities have extended a scheme to write off debts owed by troubled borrowers until the end of February next year.
The scheme was launched in November last year to help borrowers who failed to repay debts of less than 10 million won for over 10 years.
The debts are written off through funds from the National Happiness Fund, which was raised from private lenders and state-run financial institutions.
While the government is tightening lending rules for mortgage loans to curb household debts, the FSC said it will continue to provide policy loans for low-income earners.