Loan Repayment Deferment for Individual Debtors: Blind Acceptance May Lead to Disadvantages

Implemented Across All Financial Sectors on April 29
Careful Review of Requirements Needed Before Applying

[Asia Economy, reporter Kim Hyojin] Individual debtors facing the risk of being unable to repay their loans due to the novel coronavirus (COVID-19) can now defer repayment of loan principal for up to one year. However, it is important to carefully review the applicable requirements before applying for a deferment, as it could negatively impact credit scores or result in disadvantages when using financial services.

According to financial authorities on May 1, the strengthened support measures for vulnerable individual debtors, which were finalized at the 4th Emergency Economic Meeting, were implemented across all financial sectors on April 29. This measure is divided into two categories: pre-workout programs for household loans offered by individual financial institutions, and debt restructuring by the Credit Counseling & Recovery Service (CCRS).

Debtors who have taken out inclusive finance loans such as the Sunshine Loan can apply for deferment directly with the financial institution from which they borrowed, rather than with the guarantor or the CCRS. For loans other than inclusive finance loans, if only one financial institution holds the debt, the application should be made to that institution. If there are two or more creditors, the application can be submitted collectively to the CCRS.

Deferment by individual financial institutions is available to debtors whose income has decreased since February due to job loss, unpaid leave, or loss of work, and whose income, after deducting living expenses (75% of the median income), is less than their monthly debt repayment amount.

The living expense standards are 1.32 million won for a single-person household, 2.24 million won for a two-person household, 2.9 million won for a three-person household, and 3.56 million won for a four-person household. For example, in the case of a three-person household, if the current income-reduced due to COVID-19-minus 2.9 million won is less than the monthly debt repayment amount, the debtor is eligible for deferment.

The debtor must provide proof of income reduction. For those whose income reduction is difficult to verify, such as day laborers, a "Statement of Income Reduction" can be submitted instead. The support applies to unsecured credit loans and guaranteed inclusive finance loans (Sunshine Loan, Saitdol Loan) without collateral or guarantees, and is only available if less than one month remains before the scheduled principal repayment date. If approved, repayment of the loan principal can be deferred for 6 to 12 months.

Financial Services Commission

CCRS debt restructuring targets debtors whose net assets are less than their total debt due to COVID-19-related difficulties in loan repayment. Debtors can apply for deferment of principal repayment on unsecured credit loans (for 6 to 12 months). Those who have been delinquent for more than three months may also be eligible for principal and interest reduction benefits, with 10% to 70% of the principal potentially written off.

Applications for deferment can be submitted until December 31. Due to system processing issues, internet banks such as KakaoBank and K Bank will accept applications starting from May 7.

Blindly applying for deferment may lead to difficulties. Notably, interest must still be paid, and there will be no reduction in interest. If a debtor who received a deferment later misses repayment for more than five business days, the delinquency information will remain on record for three years, and new loans or credit card use will be suspended.

If a debtor is found to have made false statements about income or other requirements at the time of application, not only will the support measures be canceled, but the debtor will also be registered as a violator of financial order, and this record will remain for seven years, subjecting the debtor to sanctions by financial institutions.

Even after applying for deferment, support may be denied if the debtor is deemed capable of repayment on their own, or if it is determined that repayment of principal will be difficult after the deferment period ends.

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