Existing Loans Also Subject to Maximum Interest Rate Reduction... Credit Card Companies and Savings Banks Provide Benefits of 361.1 Billion KRW to 3.2 Million People

Card and Capital Companies, Interest Reduction Expected for About 2.64 Million People with 116.7 Billion KRW
Savings Banks, 580,000 People with 244.4 Billion KRW

[Asia Economy Reporter Ki Ha-young] Card and capital companies, along with savings banks, will lower interest rates to below 20% per annum for existing customers in accordance with the statutory maximum interest rate reduction effective from the 7th of next month. As a result, it is expected that approximately 3.2 million high-interest loan borrowers will be relieved of about 361.1 billion KRW in interest burdens.

According to the financial sector on the 26th, credit specialized financial companies such as card and capital companies will voluntarily apply interest rate reductions to existing borrowers in line with the maximum interest rate reduction measures. This is to share the pain with economically struggling low-income earners due to COVID-19 and other factors, and to fulfill their social responsibilities as financial institutions.

From July 7th, under the revised Enforcement Decree of the Loan Business Act, the statutory maximum interest rate will be lowered from 24% to 20% per annum. In principle, the maximum interest rate reduction applies to newly concluded, renewed, or extended contracts. Applying the reduced interest rate to existing customers is not a mandatory institutional requirement.

With this measure, about 2.64 million borrowers currently using credit specialized financial companies?including card (cash services, card loans, revolving credit, etc.) and capital (credit loans, etc.)?are expected to benefit by approximately 116.7 billion KRW. The Credit Finance Association estimates that 2,467,000 card industry customers and 175,000 capital industry customers will receive the reduced maximum interest rate.

In particular, assuming these borrowers fully repay at maturity without early repayment as of the end of March this year, the card industry is expected to reduce interest burdens by about 81.6 billion KRW, and the capital industry by about 35 billion KRW.

A representative from the Credit Finance Association stated, "Credit companies plan to inform customers of this through their websites, and existing borrowers will be able to receive the reduced interest rates without any separate application procedures."

Earlier, the Korea Federation of Savings Banks also decided to apply the maximum interest rate reduction to existing borrowers using loans from savings banks.

Accordingly, borrowers who took out loans after November 1, 2018, will have their rates automatically reduced to 20% or below according to the relevant terms, and for borrowers who took loans before October 31, 2018, who are not subject to automatic reduction, the industry has agreed to provide the same benefit of reducing the statutory maximum interest rate to 20% or below.

The savings bank industry estimates that this measure will relieve about 582,000 existing borrowers of 244.4 billion KRW in interest burdens.

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