Warning Issued Over Illegal Car Loans with Interest Rates Up to 229%

As reports of a new form of illegal lending using installment or leased vehicles as collateral increase, financial authorities are urging caution. These loans often involve excessive interest rates disguised as parking and travel fees.

According to the Financial Supervisory Service (FSS), there were 12 reports of illegal car loans from January to June this year, with a significant surge of 9 cases occurring in May and June alone.

Victims reported loan amounts ranging from 2.5 million to 30 million won, with interest rates reaching as high as 229% annually. This figure includes various additional costs, such as upfront fees and parking charges, which are counted as interest.

Among the victims, those in their 30s accounted for half of the cases, with 6 individuals affected. There were also 2 victims in their 60s and 1 each in their 20s, 40s, and 50s. Most victims, 9 out of 12, reside in the metropolitan area.

The primary method employed by these lenders involves taking possession of the borrower's vehicle as collateral and then charging exorbitant fees under the pretext of parking, travel, and commission costs, exceeding legal interest limits. Some cases have also involved threats to operate the collateralized vehicle without permission or to inform financing companies during the collection process.

The FSS emphasized that any fees charged by lenders related to loans, regardless of their designation as parking or travel fees, are considered interest. They also noted that registered lenders cannot charge more than 20% annually, and any interest exceeding 60% could render both the principal and interest invalid.

Particularly, caution is advised when using leased or financed vehicles as collateral, as this is often not permissible. Providing a leased vehicle as collateral could lead to embezzlement charges, while transferring a financed vehicle without the lender's consent could result in charges of obstructing the exercise of rights.

The FSS urged anyone suspecting illegal car loans or similar forms of illicit lending to report to the FSS or law enforcement to prevent potential victimization. They also highlighted that victims of illegal lending can access a one-stop comprehensive support system for assistance.