Repeated Use of 'High-Interest' Card Loans... Two Consecutive Months of Sharp Increase in Usage Amounts

Card Loan Usage Surges Last Month... Highest Amount Since March

[Asia Economy Reporter Ki Ha-young] Card loans, which are high-interest long-term loans, recorded double-digit growth rates for two consecutive months. This is interpreted as a result of the new coronavirus infection (COVID-19) and the craze for debt-financed investment (debt investment).

Some analysts suggest that considering low-credit borrowers who find it difficult to borrow money from commercial banks use card loans, the difficulties of financially vulnerable groups hit hard by COVID-19 may have intensified.

According to the card industry on the 26th, the amount of card loan usage (new) at seven card companies (Shinhan, Samsung, KB, Hyundai, Lotte, Woori, Hana Card) last month surged by 34.3% (1.062 trillion KRW) to 4.1544 trillion KRW compared to the same period last year. This is the second-largest scale after March this year (4.3242 trillion KRW), when demand for funds soared due to the spread of COVID-19.

The amount of card loan usage in August also reached 3.9066 trillion KRW, increasing by 11.7%. Since the beginning of this year, monthly card loan usage has steadily increased compared to the same month of the previous year, except for a 1.7% decrease in May when emergency disaster relief funds were disbursed.

The card industry points to the base effect caused by the unusually low usage amount in January last year and the recent overall expansion of loan demand as the background for the sharp increase in card loans last month.

The amount of card loan usage in September last year, which included the Chuseok holiday, was more than 300 billion KRW less than other months of the same year.

An industry official said, "From August to September this year, there was high loan demand across the financial sector, including commercial banks," and added, "Low-credit borrowers probably used card loans because they could not get as much loan as they wanted from banks." Another card company official predicted, "Some card companies lowered card loan interest rates to the 4% range to attract customers, so users of first-tier financial institutions who exhausted their bank loan limits may have also used card loans."

Meanwhile, as of the first half of this year, the total outstanding balance of card loans increased by about 700 billion KRW from the end of last year to 29.8 trillion KRW. However, the usage amount of short-term card loans and cash services, which have much higher interest rates, decreased by 440 billion KRW, or 10.2%, to 3.8864 trillion KRW last month compared to the same month last year.

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