Government 'Credit Loan Repayment Deferral' Support: Am I Eligible?

Scope of Principal Repayment Deferral
Criteria for Single and Multiple Debtors
Key Issues Discussed on Three Matters Including COVID-19 Income Reduction Criteria
Excluding Credit Card Cash Services and Secured Loans Such as Mortgage Loans

Due to the impact of COVID-19, the wrinkles of small business owners and self-employed people are deepening, and on the 30th, the kitchen street in Hwanghak-dong, Seoul, is quiet. Photo by Moon Honam munonam@

[Asia Economy reporters Kangwook Cho, Minyoung Kim, Hayoung Ki] Due to the impact of the novel coronavirus infection (COVID-19), individuals and self-employed persons facing the risk of loan delinquency because they cannot repay their loans will be able to postpone principal repayment for up to one year, drawing attention to the criteria for repayment deferral. This is because the requirements may vary for each program, such as pre-workout by financial companies for single debtors, debt adjustment by the Credit Counseling & Recovery Service for multiple debtors, and the Korea Asset Management Corporation (KAMCO) personal delinquent debt purchase fund for long-term delinquents. Financial authorities are currently accelerating the preparation of detailed criteria according to the support contents of each financial company.

According to financial authorities and the financial sector on the 9th, the Financial Services Commission and financial companies are currently in the final stages of discussions on detailed criteria to identify eligible debtors for each program.

A Financial Services Commission official said, "As outlined in the recently announced measures to strengthen support for vulnerable individual debtors' recovery, we have established an overall framework through consultations with financial companies," adding, "We are currently in the final stages of discussions on detailed criteria and will finalize and announce them sequentially as soon as possible." He continued, "Although debtors will individually inquire with financial institutions, we will formalize the criteria as simply as possible so that they can identify the applicable programs themselves."

The key issues currently under discussion are ▲ the scope of principal repayment deferral eligibility ▲ criteria distinguishing single debtors from multiple debtors ▲ and the standards for income reduction due to COVID-19 damage, totaling three main points.

First, the most attention is on the scope of principal repayment deferral eligibility for matured unsecured loans. In particular, unsecured loans include limit loans, commonly known as 'minus accounts,' and discussions are ongoing on whether to include these in the principal repayment deferral. However, it has been confirmed that cash advances from credit card companies will be excluded from the principal repayment deferral.

Also under review is the criterion distinguishing single debtors from multiple debtors. This is because the applicable program and the financial institution handling it differ depending on whether the debtor is single or multiple. For example, if a debtor has an unsecured loan from Bank A, a Saemaul Loan or other microfinance loan from Bank B, and a mortgage loan from Bank C, there is an issue of which financial institution to approach for principal repayment deferral. If the debtor has an unsecured loan from Bank A and a mortgage loan from Bank B, they are not considered a multiple debtor. In such cases, the debtor can go to Bank A to receive principal repayment deferral for the unsecured loan. Mortgage loans and guaranteed loans are excluded.

This support targets vulnerable individual debtors who are more likely to fail to repay household loans on time due to unpaid leave, loss of work, and other damages caused by the prolonged COVID-19 crisis, so the key is how to define the standard for income reduction. Financial authorities plan to formalize this so that both financial company staff and general debtors can easily understand it. For example, if the disposable income to repay interest is defined as the amount remaining after subtracting minimum living expenses from last month's monthly income, a joint financial sector standard will be established so individuals can calculate their eligibility by comparing this with the total principal and interest to be repaid annually.

However, concerns have been raised that detailed criteria may face difficulties before being announced, as the burden on financial companies inevitably increases and it is complicated to finalize specific support targets. While the financial sector sympathizes with the government's intention to share pain in an emergency, there are complaints that the government is shifting the 'household credit delinquency' problem onto financial companies.

An official from the secondary financial sector said, "If repayment of unsecured loans is deferred, cash flow from loans will be cut off for a certain period, causing liquidity problems," adding, "Cash inflow is recognized as revenue and becomes a means of fund operation that can be reused, but if this flow is interrupted, small financial companies may face funding shortages."

Credit card companies, capital companies, and other specialized finance industries are also worried about the chain bankruptcy of small and medium-sized enterprises.

A credit card industry official said, "Unless individual debtors recover normally, this is just postponing a bomb to be dealt with later, and it could return as a bigger bomb after one year," adding, "Without measures on soundness classification for reserve accumulation and funding, small and medium-sized companies are basically being told to die."

A capital industry official said, "Support for self-employed persons has already started from the 1st of this month, so it is bewildering that it is now expanding to individuals," adding, "There are industry-specific characteristics, and as capital companies do not have deposit functions, the purchase of debt adjustment funds related to specialized credit finance bonds is delayed, making the funding market difficult, so the future is really worrisome."

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