[Practical Finance] If Your Salary Increased or You Got Promoted... "Cut Down on Loan Interest"

If Credit Status and Repayment Ability Improve, You Can Request Interest Rate Reduction from Financial Institutions
Employees: Upon Employment, Promotion, or Income Increase; Self-Employed: When Sales Increase
Financial Institutions Notify Review Results Within 5-10 Days... Rejection Probability Also Exceeds 50%

Right to Request Interest Rate Reduction... Am I Eligible?

[Asia Economy Reporter Lee Kwang-ho]Mr. Lee, in his late 30s working at an IT company, received a scout offer at the end of last year and changed jobs, resulting in a promotion and an annual salary increase of over 20 million KRW. After confirming his improved credit rating, he visited his main bank to request a reduction in the interest rate on his personal loan. Mr. Lee submitted an application for the right to request an interest rate reduction along with supporting documents (certificate of employment, withholding tax receipt for earned income, etc.), and 10 days later received a text message from the bank approving a 0.2 percentage point interest rate cut.

Recently, as household loans have surged and interest rates have shown an upward trend, the right to request an interest rate reduction has attracted attention. This right allows individuals or businesses to request a lower loan interest rate from financial institutions if their credit status or repayment ability has improved since the loan was taken. It was legislated on June 12, 2019. The right to request an interest rate reduction can be applied for not only at commercial banks but also at secondary financial institutions such as insurance companies, credit card companies, and savings banks. It applies to products including both unsecured and secured loans, as well as personal and corporate loans. However, loans from policy funds such as Saemangeum loans, loans secured by deposits or savings, and insurance contract loans handled according to predetermined criteria are excluded from this right.

Conditions for applying for the right to request an interest rate reduction include ▲improvement in credit rating ▲increase in income or assets due to employment or promotion ▲increase in sales or net profit for self-employed individuals or companies. If these conditions are met, applicants must visit a branch and submit documents proving their improved credit status. For example, individuals who have been promoted or newly employed can submit a certificate of employment and pay slips.

For self-employed individuals or companies, applications can be made if sales have increased or if patents have been acquired or collateral can be provided. In such cases, supporting documents such as interim financial statements, tax invoices related to sales, or corporate credit evaluation results must be submitted. When individuals or companies apply for an interest rate reduction, financial institutions review the application based on internal evaluation criteria and usually notify customers of the approval status and applicable interest rate within 5 to 10 business days.

Since reducing fixed expenses lowers repayment burdens, this system is essential knowledge for those who invest with loans ("debt investment") or borrow to the limit ("soul pulling"). However, acceptance rates of interest rate reduction requests at commercial banks are not uniformly high.

29,118 Applicants by October Last Year... Interest Saved Amounted to 25.6 Billion KRW

According to data submitted by the Financial Supervisory Service to Yoon Doo-hyun, a member of the National Assembly’s Political Affairs Committee from the People Power Party, 29,118 customers who applied for the right to request an interest rate reduction at the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?between January and October last year received interest rate reduction benefits, saving a total of 25.6 billion KRW in interest.

Among the five major banks, NH Nonghyup Bank had the highest acceptance rate (number of accepted cases/applications) at 96.4%, followed by Woori Bank at 72.7%, Hana Bank at 53.2%, KB Kookmin Bank at 46.7%, and Shinhan Bank at 43.2%.

In the case of KakaoBank, about 90,000 customers received interest reduction benefits annually by applying for this right, more than three times the number at the five major commercial banks. Even considering that the statistical standards for counting applications differ among banks, three of the commercial banks reject more than 50% of interest rate reduction requests.

Financial Authorities Plan to Improve Operation of Interest Rate Reduction Requests in the First Half of the Year

Financial authorities and the banking sector plan to improve the operation of the right to request interest rate reductions within the first half of the year. The Financial Services Commission and the Financial Supervisory Service have formed a task force (TF) with the Korea Federation of Banks and major banks to discuss related matters.

The TF is first reviewing ways to enhance the guidance and explanation provided to customers about the right to request interest rate reductions. This includes correcting cases where banks incorrectly inform customers that “interest rate reductions may be limited if preferential rates have been received” or mistakenly explain that “borrowers who have had loans for less than three months cannot apply for the right to request an interest rate reduction,” despite eligibility. They are also considering measures to regularly inform customers about this right throughout the loan period or notify customers whose credit scores have improved.

Additionally, the TF is exploring ways to unify application qualifications and applicable products to prevent banks from applying different standards and to allow borrowers to apply for interest rate reductions without undue restrictions if their credit status has improved. Previously, when individuals with improved credit applied for interest rate reductions at multiple banks simultaneously, there were controversies due to differences in acceptance and the extent of rate reductions among banks.

A financial authority official said, "We are reviewing unifying the varying application requirements among banks and making the evaluation and acceptance criteria transparent and reasonable," adding, "We will strive to simplify procedures for financial consumers."

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