Low-credit borrowers are increasingly being pushed into illegal lending as they struggle to secure loans from banks and second-tier financial institutions. It is estimated that the amount of money shifted to illegal lending last year exceeded 1.5 trillion won.
On July 28, the Korea Institute of Financial Services reported that a survey of 977 low-credit individuals who had experience with either licensed lenders or illegal financial services over the past three years found that 59.4% had been rejected when applying for loans from registered lenders. Among those rejected, 50.7% were unable to secure the necessary funds afterward.
Of those who failed to obtain funding, 45.6% reported that they had lost motivation in life, with symptoms of depression worsening. Notably, 41.7% of respondents in their 20s indicated they had considered resorting to dishonest means to obtain money.
The most common use of loan funds was for basic living expenses, reported by 41.0% of respondents, followed by repayment of existing debts at 26.1% and medical expenses at 10.1%. After being rejected for loans, 34.0% relied on help from family or friends, while 23.1% turned to borrowing from other financial institutions. The utilization rate of policy-based financial services was only 12.0%.
There has also been an increase in cases where individuals unknowingly used illegal financial services. Among those who used illegal lending, 49.1% were unaware that they were dealing with illegal operators at the time of borrowing, more than double the 22.3% reported in 2023.
The impact of illegal debt collection has also expanded. The percentage of individuals experiencing harassment from illegal debt collectors rose from 9.6% in 2023 to 17.5% last year, while those whose debt was disclosed to third parties increased from 3.2% to 14.0%.
The institute estimates that between 59,000 and 119,000 low-credit individuals shifted to illegal lending last year, with the total amount involved ranging from 760 billion to 1.55 trillion won. This represents nearly double the estimates from 2024.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.