As Bank Loans Tighten, Borrowers Turn to Insurance and Lending Firms

Borrowers struggling to secure necessary funds through bank loans are increasingly turning to insurance companies and lending firms. To cover shortfalls in housing purchase funds, they are utilizing housing mortgage loans from insurers, which have higher debt service ratio (DSR) limits than banks, as well as insurance contract loans that are exempt from DSR regulations.

As of October 14, financial sector sources report that the DSR limit for bank borrowers is 40%, while for insurance companies it is 50%. Even if a borrower reaches the DSR limit at a bank, they may still qualify for additional loans from insurers, provided their overall DSR remains below 50% and they meet other lending criteria.

Some insurance companies offer housing loans with interest rates comparable to or lower than those of banks, making them an attractive option for additional funding. For instance, Samsung Life's mobile housing loan has a minimum interest rate of 5.70% per year, while Kyobo Life's e-Apartment Loan starts at 5.99%, and NH Nonghyup Life offers rates from 5.50%. In comparison, Hana Bank's apartment loan has a minimum rate of 5.704%, and Woori Bank's real estate loan starts at 5.73%. However, actual rates may vary based on borrower creditworthiness, collateral, and preferential conditions.

There has also been a rise in insurance contract loans, which allow borrowers to secure funds using the surrender value of their insurance policies as collateral. These loans do not require separate collateral and are exempt from DSR regulations, providing a means for borrowers who have reached their bank loan limits to obtain additional funds.

From April to July of this year, the balance of insurance contract loans increased by 2.4647 trillion won. The overall loan growth among insurance companies was primarily driven by these contract loans. After a decrease of 392.7 billion won in April, loans increased by 881.3 billion won in May, followed by a rise of 1.0639 trillion won in June and over 700 billion won in July.

Similar trends are evident in the lending sector, where the top 30 lending firms saw a 33.3% increase in new users in the first half of the year, totaling 142,765, compared to 107,072 during the same period last year. The amount of new loans also rose by 22.4%, from 740.4 billion won to 906.2 billion won.

Unlike banks and second-tier financial institutions, lending firms are not directly subject to DSR regulations. The tightening of bank lending standards, coupled with high exchange rates, interest rates, and inflation, has led to increased reliance on these firms by borrowers in need of funds.

However, the burden of repayment from additional borrowing is a significant concern. While borrowers may temporarily alleviate their cash flow issues by taking out loans from banks, insurance companies, or lending firms, their overall repayment obligations will increase. Notably, the average interest rate for credit loans from lending firms is between 19% and 20%, placing a heavy burden on borrowers.

Additionally, long-term delinquencies in insurance company housing loans are rising. As of June this year, 1.921 trillion won was overdue by more than 30 days, with 1.071 trillion won, or 55.8%, overdue by more than 90 days. This percentage has increased by 6.4 percentage points since the end of 2022, with the amount overdue by more than 90 days rising from 637 billion won to 1.071 trillion won, a 68.1% increase.