The revolving system allows users to repay only a portion of their credit card balance, deferring the remaining amount for later repayment. (Image courtesy of Yonhap)
SEOUL, Nov. 10 (Korea Bizwire) – Working-class individuals in South Korea are finding themselves compelled to resort to revolving loans carrying an annual interest rate of 20 percent. This shift is a consequence of savings banks and card companies, typically the go-to sources for emergency funds among ordinary people, raising the bar for access to long-term card loans.
It’s not uncommon for ordinary individuals to turn to card loan services when they temporarily face difficulty paying their bills. However, if such loans are mismanaged, it can result in a snowball effect of interest rate burdens.
As per financial industry reports on Thursday, the card loan balances of the nation’s nine major credit card companies—Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana, BC, and NH—stood at 38.4 trillion won at the end of September, marking a decrease of 267.9 billion won from the previous month.
In contrast, their revolving carryover balances increased by 126.2 billion won during the same period, pushing the cumulative revolving balance to a record high of 7.6 trillion won.
Among credit card companies, Lotte Card boasts the highest revolving interest rate, with the company’s average revolving interest rate in September coming in at 17.88 percent. However, for cardholders with a credit rating below 700 points, KB Kookmin Card held the highest average interest rate at 19.28 percent.
The revolving system allows users to repay only a portion of their credit card balance, deferring the remaining amount for later repayment. Given the high interest rate, approaching the legal maximum of 20 percent, and a short loan period, it carries a significant risk of delinquency.
The primary reason behind the decline in card loans and the surge in revolving balances is the refusal of credit card companies to extend card loans to individuals with a credit score below 500 starting in September.
Consequently, ordinary individuals with low credit scores have no option but to turn to short-term loan services, including revolving loans, with an annual interest rate of about 20 percent.
The balance of insurance policy loans, considered recession-type loans, also saw an increase, reaching 69.4 trillion won in the first half of this year—up about 1.4 trillion won from last year.
Ashley Song (ashley@koreabizwire.com)
