Annual Interest Rate 145%... Illegal Private Loans 'Rampant'

Daebu Association Analyzes Over 1,000 Cases of Illegal Private Loan Transactions
Average Loan Amount 33.72 Million KRW, Average Annual Interest Rate 145%

[Asia Economy Reporter Kim Min-young] Last year, users of illegal private loans borrowed more than 30 million won and paid an annual interest rate reaching 145%, according to an investigation.

The Korea Financial Services Association disclosed on the 10th that it analyzed 1,048 cases of illegal private loan (unregistered lending business) transactions requested by judicial authorities (345 cases) and victims (703 cases) last year, revealing these findings.

According to the Lending Association, the average loan amount for illegal private loan users was 33.72 million won, and the average transaction period was 156 days. The most common loan type was short-term credit loans (geupjeon daechul) with 788 cases, followed by daily loans (ilsu daechul) with 253 cases, and secured loans with 7 cases. The annualized average interest rate reached 145%.

If the annualized interest rate exceeds the legal maximum interest rate of 24% per year, it is all illegal. For prosecutors, police, and other investigative agencies to indict illegal private lenders for violating interest rate limits, interest rate calculations are necessary, but illegal private loans differ from typical financial transactions in that loans (short-term cash loans, daily loans, etc.) and interest repayments are made irregularly and in non-fixed amounts, causing difficulties for investigative agencies and victims in calculating interest rates.

Accordingly, since 2015, the Lending Association has been continuously supporting investigative agencies and victims by calculating interest rates to assist in remedying damages and punishing illegal private loan cases.

Additionally, when illegal private loan victims apply for debt adjustment, the association directly contacts the lenders via phone, etc., to proceed with debt adjustments within the legal interest rate.

Last year, the association readjusted the interest rates within the legal limit for 294 cases of illegal private loan damages (loan amounting to 548.47 million won), and for 22 cases where interest was overpaid beyond the legal rate, it refunded 38.46 million won in excess interest to the debtors.

The association stated, "Recently, illegal private lenders have been rapidly increasing cases of enticing self-employed individuals and low-income earners who cannot use regulated financial institutions through false and exaggerated advertisements on the internet and social network services (SNS), leading them to take high-interest private loans, so special caution is required."

This content was produced with the assistance of AI translation services.