Household Debt Rises as Borrowing Increases for Living Expenses and Investments

# Investor A recently borrowed money to buy more stocks after prices fell, hoping to lower his purchase price and recover losses when the market rebounds. However, as stock prices continued to decline, A found himself needing more funds for additional purchases. With limited savings, he ultimately withdrew more from his overdraft account.

# B, a homemaker who had been managing household expenses and existing loan interest with her spouse's salary, recently faced unexpected medical expenses due to a family member's hospitalization. Although she lacked immediate cash, she was reluctant to cash in her savings and opted for a deposit-backed loan instead. B stated, "I considered taking a part-time job, but I couldn't find a suitable place for my child, so I started looking into loans."

The balance of overdraft accounts has surged to its highest level in four years and three months, while deposit-backed loans have exceeded 7 trillion won. Borrowers are increasingly using loans not only for low-priced stock purchases but also to cover living expenses and medical bills.

According to financial institutions on the 15th, the balance of overdraft accounts at the five major banks (KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup) was recorded at 44.2632 trillion won as of the 12th. This marks the highest level since the end of August 2022 (44.7699 trillion won). The balance increased by 6.682 trillion won (1.5%) from the end of last month, surpassing the increase of 6.115 trillion won recorded in October within just 12 days of this month.

An overdraft account is a credit loan product that allows users to withdraw money up to a predetermined limit as needed. The utilization rate, which measures the ratio of actual usage to the agreed limit, has also risen. Bank A's utilization rate increased from 43.0% at the end of last year to 47.3% at the end of last month, reaching 48.0% by the 12th of this month. Similarly, Bank B's rate rose from 40.2% to 45.1% and then to 46.1% during the same period.

Banks attribute the increase in overdrafts to demand for funds for low-priced stock purchases amid fluctuating stock market conditions. Investors are utilizing existing loan limits to lower their average purchase prices or to inject funds at opportune moments.

There has also been a growing demand for loans backed by deposits. The balance of deposit-backed loans, including those for housing subscriptions, reached 7.143 trillion won on the same day. This figure has risen from 6.2836 trillion won at the end of March to 6.8508 trillion won at the end of September, surpassing the 7 trillion won mark.

Deposit-backed loans allow borrowers to access funds without cashing in their savings. This helps them avoid interest losses from early withdrawals and maintain their subscription periods and payment records for housing subscription accounts while addressing temporary cash shortages. These loans are not subject to limits based on the total debt repayment ratio (DSR), making them a viable funding option when other loan limits are insufficient.

The increasing reliance on loans reflects both investment demand and the challenges of managing unexpected expenses solely with income. A financial industry source noted, "There is a demand for quick cash loans or temporary funding solutions as many find it difficult to cover living expenses with income alone."

However, failing to repay deposit-backed loans can lead to the closure of the accounts used as collateral, resulting in lost interest if the accounts are not maintained until maturity. If a housing subscription account used as collateral is closed, the subscription period and payment history may also be forfeited. A representative from a major bank advised, "Before utilizing deposit-backed loans, borrowers should compare the interest lost from early withdrawals with the interest they will incur on the loan during the required period."

While borrowing may provide immediate relief, prolonged dependence on loans could burden household consumption. Emeritus Professor Jo Dong-geun of Myongji University warned, "As reliance on loans increases, consumer spending capacity diminishes, which could lead to decreased sales for small businesses."