Decline Amid High Interest Rates, Cash Service Usage Decreases Despite COVID-19

Legal Maximum Interest Rate Nears 24%
Preference for Low-Interest Small Loans

[Asia Economy Reporter Ki Ha-young] Despite COVID-19, the number of people using cash services (short-term loans) for urgent cash needs has significantly decreased. This is attributed to the high interest rates approaching the legal maximum rate (24%) and the diversification of low-interest small loan products.

According to the credit finance association's disclosure on the 3rd, as of the end of December last year, the average interest rates (operating prices) for cash services based on standard grades from seven full-service card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana) ranged from 18.50% to 19.48%. The average rate among the seven companies was 18.94%, which is 5.62 percentage points higher than the card loan (long-term loan) rate of 13.32% during the same period.

The Credit Finance Association expanded the disclosure of standard grade-based interest rates, which had been applied to card loans and credit loans since the end of last month, to include cash services. The standard grade is a standardized 10-grade system based on the probability of default (the likelihood of being overdue for more than 90 days within one year) for each card company's internal rating.

The card company with the highest average interest rate for cash services was Hana Card at 19.48%. KB Kookmin (19.22%) and Hyundai Card (19.03%) also recorded rates above 19%. Samsung (18.89%), Lotte (18.77%), and Woori Card (18.69%) followed. The lowest average interest rate for cash services was 18.50%, recorded by Shinhan Card.

For high-credit customers in grades 1-2, KB Kookmin Card offered the highest rate at 15.19%, while Lotte Card recorded the lowest at 10.89%. There was a difference of up to 4.3 percentage points in interest rates depending on the card company. For low-credit customers in grades 9-10, the interest rates approached the legal maximum of 24%. Hyundai Card lent money at the highest rate of 23.71%, and even Woori Card, which offered the lowest rate to low-credit customers, recorded 21.37%.

Customers using cash services generally have lower credit ratings than those using card loans. About 50% of cash service users are subject to high interest rates above 20%, whereas for card loans, this is around 15%. Due to the high interest rates, the use of cash services is also declining. According to the Bank of Korea's economic statistics system, the amount of personal cash service usage by credit card companies recorded 4.5217 trillion won as of the end of October. Although this is a 3.72% increase from September (4.3595 trillion won), which was the lowest since 2003, it is a sharp 11.9% decrease compared to the same period last year. The amount of cash service usage, which reached 26 trillion won in 2003, has decreased to the 4 trillion won level over 17 years.

An industry official said, "With the decrease in cash usage and the increase in small loans offered at low interest rates by internet banks, the number of customers using cash services is declining," adding, "The incentive to use high-interest cash services, which approach the legal maximum interest rate, is diminishing."

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