From the 7th, the Legal Maximum Interest Rate is 20%... Haetsal Loan Also at '15'

Reduction of Maximum Interest Rate Cannot Be Applied Retroactively as a Principle
HaeSalLon17 Reduced by 2 Percentage Points Compared to Before

[Asia Economy Reporter Song Seung-seop] From the 7th, the statutory maximum interest rate will be lowered to 20%. As a follow-up measure, the interest rate of the policy financial product ‘Haetsalron17’ will also be reduced accordingly.

According to financial authorities on the 1st, the interest rate applied to loans from financial companies and private transactions will be lowered by 4 percentage points from 24%. This applies to lenders and credit finance institutions under the revised Enforcement Decree of the Loan Business Act and Interest Rate Restriction Act, which passed the Cabinet meeting in March. Private monetary transactions apply when the amount is 100,000 KRW or more. After being promulgated on April 6 with a three-month grace period, it will be enforced from the 7th.

The maximum interest rate under the revised enforcement decree will apply to contracts newly concluded or renewed/extended. In principle, the reduced maximum interest rate will not be applied retroactively to contracts concluded before the enforcement date. However, savings banks are required to apply a 20% interest rate to contracts concluded, renewed, or extended after November 2018 according to the revised standard terms. The industry plans to apply the reduction retroactively to all loans taken before November 2018 on its own initiative.

Follow-up measures due to the interest rate reduction will also be implemented. The interest rate of Haetsalron17, a policy financial product for low-credit borrowers, will be lowered by 2 percentage points from 17.9% to 15.9%. The name will change to Haetsalron15 from the 7th, and the interest rate reduction offered for faithful repayment will also be expanded.

The existing Haetsalron17 had a structure where a 3-year maturity loan charged 17.9% in the first year and, if repaid faithfully, 12.9% in the third year. The improved Haetsalron15 lowers the rate more significantly from 15.9% to 9.9% over the same period. The 5-year maturity loan product was only reduced from 17.9% to 13.9% (in the 5th year), but Haetsalron15 lowers it from 15.9% to 9.9%.

Eligible applicants are those with an annual income of 35 million KRW or less, or those in the bottom 20% credit score bracket with an annual income of 45 million KRW or less. To prevent excessive loans beyond repayment capacity, screening focuses on the debt service ratio (DSR) relative to income. Screening is relaxed regarding past financial transaction history or credit scores, such as delinquency records or secondary financial institution debts. The use of funds is not specified and broadly supports emergency funds and general living expenses. Repayment options include equal principal and interest installments over 3 or 5 years.

However, borrowers who previously took out Haetsalron17 loans will find it difficult to receive retroactive application immediately. This is because it is a single fixed-rate product and below the statutory maximum interest rate. Instead, there is a method to apply the retroactive interest rate by repaying the existing loan and newly taking out Haetsalron15, which has no prepayment penalty, or by reusing it after maturity.

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