Loans Will Be Harder Next Year... Individual DSR Applied Considering Ability to Repay Debt

[Image source=Yonhap News]

[Asia Economy Reporter Jo Gang-wook] It is expected to become even more difficult to obtain loans next year. This is because the management method of the Debt Service Ratio (DSR) by financial institutions will shift to an individual basis. This means managing household debt by granting loans based on the borrower's ability to repay.

On the 17th, the Financial Services Commission announced in the '2021 Economic Policy Direction Departmental Key Tasks' that it will prepare an 'Advanced Household Debt Management Plan' centered on strengthening DSR in the first quarter of next year.

DSR is the ratio of the total principal and interest repayment of household loans to the borrower's annual income. The total loan amount, including mortgage loans, credit loans (overdraft accounts), and car installment loans, is determined according to the income earned.

According to this plan, DSR regulations will be significantly strengthened. Until now, DSR has been regulated by financial institution, but the regulation will be expanded to apply to individuals as well.

The assessment of mortgage loan repayment ability will also be gradually replaced and applied using DSR. The DSR calculation method will be advanced to reflect the borrower's actual repayment ability, considering future income based on life-cycle income and rationalizing the applicable loan term.

In addition, the Financial Services Commission plans to expand the special debt adjustment targets for self-employed borrowers who have difficulty repaying debts and review the credit card fee burden on small business owners and micro-entrepreneurs, preparing a reasonable reform plan by December next year.

The Financial Services Commission stated, "To establish credit screening focused on repayment ability, we will prepare an advanced household debt management plan in the first quarter of next year and gradually implement it as COVID-19 stabilizes."

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