The rising interest rates for loans to borrowers with low to moderate credit scores are increasing repayment burdens in the credit card industry. In this context, the government is reiterating its commitment to support low-credit borrowers in the second financial sector, prompting credit card companies to adjust interest rates and limits while considering their financial stability.
According to the financial sector, President Lee Jae-myung stated in a post on X (formerly Twitter) on September 5 that "2,928,000 people's credit scores have improved, and 38,000 individuals can now use credit cards for the first time." He added, "We will continue to pave the way for recovery so that people do not falter in the face of difficulties."
This statement underscores the government's determination to enhance financial accessibility for low-credit individuals. The Financial Supervisory Service has also decided to exclude loans to low-credit borrowers from the total household loan management targets starting in August, encouraging lending to this demographic.
However, the interest rates that low-credit borrowers must bear are on the rise. According to the Korea Credit Finance Association, the average interest rate for borrowers with credit scores below 700 has increased for most companies compared to the first quarter. Shinhan Card saw the largest increase, with rates jumping from 10.66% in March to 11.57% in July, a rise of 0.91 percentage points.
During the same period, Samsung Card's rates increased from 10.76% to 11.46%, a rise of 0.70 percentage points. Lotte Card and Hyundai Card also experienced increases of 0.47 and 0.37 percentage points, respectively. BC Card and KB Kookmin Card saw increases of 0.28 and 0.07 percentage points, while Hana Card's rate rose by 0.01 percentage points.
Interest rates for ultra-low-credit borrowers, those with scores below 600, are also trending upward. Hana Card's rate surged from 10.47% to 12.18%, marking the largest increase at 1.71 percentage points. Samsung Card and Shinhan Card also saw increases of 0.52 and 0.49 percentage points, respectively.
The rise in loan rates for low-credit borrowers is attributed to increased delinquency rates and bad debt costs amid economic downturns. If the trend of rising loan rates continues, the already heightened repayment burden may lead to further increases in delinquency rates.
In fact, the delinquency burden for credit card companies is growing. As of the end of June, the total delinquency rate for eight major credit card companies was 1.54%, up 0.02 percentage points from the end of last year.
Additionally, the rising cost of funding for credit card companies is a concern. The Bank of Korea has raised the benchmark interest rate twice this year, leading to increased borrowing costs for credit card loans. According to the Korea Financial Investment Association's Bond Information Center, the average rate for financial bonds (non-guaranteed, AA+, 3-year bonds) was 4.447% as of September 4, up 0.7 percentage points from four months ago.
The credit card industry anticipates that it will have to bear funding burdens while adjusting interest rates for low to moderate credit borrowers. An industry insider stated, "With market interest rates at a high level, there will be challenges in funding for the time being, and we must balance our lending to low to moderate credit borrowers."
* This article has been translated by AI.
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