Jeonse Loan Interest Rates Vary Widely... Up to 1.7%P Difference

Average Interest Rate of 18 Banks at 2.5%
Jeonbuk Bank Tops at 3.42% per Year
Experts Say "Calculation Process Must Be Disclosed"

[Asia Economy Reporters Kwangho Lee and Seungseop Song] It has been revealed that the average (effective) interest rates on government-guaranteed jeonse loans vary by up to 1.7 percentage points depending on the bank. In particular, the gap was significantly large among regional banks, with Jeonbuk Bank having the highest loan interest rate.

According to the "Status of Effective Interest Rates on Jeonse Loans by Domestic Banks" 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, as of February, the average interest rate on jeonse loans from 18 domestic banks was recorded at 2.50% per annum.

The effective interest rate refers to the actual interest rate applied to the loan after banks apply preferential rates and other adjustments. It is calculated as a weighted average of the interest rates actually applied to borrowers based on the loan amount.

The interest rates on jeonse loans were notably higher at regional banks. Jeonbuk Bank set the highest rate at 3.42% per annum. Jeju Bank (2.85%), Suhyup Bank (2.76%), and Daegu Bank (2.61%) also had relatively high rates. In contrast, Gwangju Bank had the lowest rate among all banks at 1.72%, creating a stark contrast. Among the five major banks most sought after by loan applicants?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?Kookmin Bank had the lowest rate at 2.37%, while Nonghyup Bank's rate was higher at 2.58%.

Large Interest Rate Differences Even in Guaranteed Loans... "Disclosure of Calculation Process and Promotion of Competition Needed"

Experts point out that it is excessive to apply such high interest rates with nearly a 50% difference even though guaranteed loans carry almost no risk for banks. Most jeonse loans are guaranteed by the Korea Housing Finance Corporation and the Housing and Urban Guarantee Corporation. Professor Yang Jun-mo of Yonsei University's Department of Economics said, "While each bank may be in different circumstances, the difference is significant considering the loans are guaranteed." As a solution, he suggested the disclosure of the specific interest rate calculation process. Professor Yang stated, "In foreign countries, it is possible to know exactly how interest rates are determined," and added, "Measures to promote competition should be established so that consumers can easily verify and choose."

Professor Lee Byung-tae of KAIST's Department of Economics also explained, "In the United States, there is a system where each bank competes to offer the optimal interest rate to consumers," and added, "In Korea, consumers have to visit banks one by one for consultations, which is cumbersome and they are unaware of better conditions." He emphasized, "It is also a method for financial authorities to guide consumers to obtain loans under the best conditions and to promote related services."

Banks maintain that various factors must be considered. A representative from a commercial bank said, "Jeonse loans differ by bank in terms of additional interest rate items, levels, and borrower evaluation methods," and added, "Since there are few new loan applicants, there may be an optical illusion due to insufficient samples." Another bank official said, "It is not easy to provide jeonse loans at an average rate in the 1% range," and noted, "It is possible that people with high or low credit scores were concentrated in certain banks."

Assemblyman Yoon advised, "The interest burden varies greatly depending on the bank chosen," and recommended, "You should carefully review and decide before taking out a loan."

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