According to the financial sector on July 1, the Financial Services Commission announced the mid-interest loan rate caps for the second half of the year. The new caps are set at 8.97% for mutual finance, 12.26% for credit cards, 14.37% for capital, and 15.27% for savings banks. Compared to the previous year's second half, the rates have decreased by 0.59 percentage points for mutual finance, 0.07 percentage points for credit cards, 1.13 percentage points for capital, and 1.24 percentage points for savings banks. These rates will be in effect from July 1 until December 31.
The mid-interest loan program is designed to provide funding to mid- and low-credit borrowers at rates lower than the legal maximum. For a financial institution to qualify a loan as a mid-interest loan, it must meet the established rate caps for its sector.
Notably, the cap for savings banks is set at 15.27% for the second half of the year, significantly lower than the peak of 17.50% seen in 2023-2024. The mutual finance cap of 8.97% is also below the 9.01% recorded in the second half of 2022, while the capital cap of 14.37% has broken through the 15.50% barrier that had been maintained for nearly four years since the first half of 2023. In contrast, the credit card sector's cap of 12.26% is slightly lower than the previous half but remains 0.97 percentage points higher than the 11.29% seen in the second half of 2022.
The reduction in mid-interest loan rate caps reflects changes in funding costs but also aligns with the authorities' focus on managing household debt. Recently, the financial authorities have concentrated not only on the total volume of household loans but also on their intended use. With a rebound in the stock market increasing demand for investment loans and expectations of a recovery in the real estate market driving up mortgage demand, the authorities aim to prevent mid- and low-credit borrowers from shifting to high-interest loans like credit cards while managing investment and real estate loans. The authorities are also considering institutional support, such as incentives for financial institutions that expand mid-interest loans, in this context.
In fact, the Financial Services Commission is scheduled to hold a meeting on July 2 with representatives from the credit card, capital, and mutual finance sectors to review household debt management. This meeting will focus on the growth trends of loans and the flow of funds within each sector. Savings banks are reportedly excluded from this meeting. In line with the trend of expanding mid-interest loans, several savings banks have launched mid-interest stability loans. Six banks, including KB, OK, SBI, Shinhan, Yegeoram, and Korea Investment Savings Bank, are offering products that allow mid- to low-credit borrowers with credit scores in the bottom 50% to borrow up to 10 million won across all financial sectors. The maximum interest rate is set at 15.27%, the same as the recognized cap for mid-interest loans from savings banks.
However, there are concerns in the industry that the lowered rate caps may actually discourage the issuance of mid-interest loans. One financial sector official stated, "Unlike the first half of the year, funding costs are expected to rise in the second half, and if rates decrease, margins will shrink, reducing the incentive to expand mid-interest loans."
* This article has been translated by AI.
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