Starting Tomorrow, Maximum Interest Rate 20% per Year... "Just Remember This"

Savings Banks, Capital, and Card Companies in the Secondary Financial Sector to Apply 20% Retroactively
"Report Loans Exceeding 20% to the 'Illegal Private Loan Reporting Center'"

[Asia Economy Reporter Kwangho Lee] On the 7th, the statutory maximum interest rate will be lowered from 24% to 20%. Secondary financial institutions such as savings banks, credit card companies, and capital companies will apply the interest rate reduction to customers who previously bore interest rates exceeding 20%. From now on, for loans exceeding 20%, you can report them to the Illegal Private Loan Reporting Center. On the 6th, financial authorities provided a situation-specific checklist regarding the implementation of the statutory maximum interest rate reduction to 20%.

◆ "Get retroactive application from secondary financial institutions" = Basically, the maximum interest rate reduction does not apply retroactively to existing loans, but this time, savings banks, capital companies, and credit card companies have voluntarily agreed to apply the maximum interest rate reduction to existing loans in line with the purpose of the reduction. Therefore, if you are using these financial sectors, you should inquire and confirm with the financial company about the retroactive application of an interest rate below 20% per annum.

Even if the financial institution does not voluntarily reduce the rate, you can inquire whether it is possible to reduce the interest rate through contract renewal or other means. If you can obtain a new loan by dealing with another financial institution or using policy-based low-income financial products, you can replace (refinance) the existing loan exceeding 20% per annum with a new loan.

It is expected that 582,000 customers of savings banks will benefit from interest reduction amounting to 244.4 billion KRW. Credit card companies include 2,467,000 people, and capital companies include 175,000 people eligible for interest rate reduction, with expected interest savings of 81.6 billion KRW and 35 billion KRW, respectively.

◆ "Loans exceeding 20% per annum are illegal" = From tomorrow, charging interest rates exceeding 20% per annum on new loans or renewals/extensions of existing loans is illegal. A four-month joint crackdown period on illegal private loans by multiple government agencies will be in effect from July to October, so if you suffer damages, you should actively report to the Illegal Private Loan Reporting Center.

Financial companies, lenders, and illegal private loan operators who collect interest exceeding the maximum interest rate may face imprisonment of up to three years or fines up to 30 million KRW. Since the portion exceeding the maximum interest rate is invalid, debtors can claim a refund.

Also, if you need to claim a refund for violation of the maximum interest rate or are suffering from illegal debt collection but are worried about costs, you can apply for the government's "Free Support Program for Debtor Representatives and Litigation Lawyers."

◆ "Do not use illegal private loans" = Even if it is difficult to access funds currently, you should never use illegal private loans that charge excessive interest rates and lead to illegal debt collection. The Korea Inclusive Finance Agency will supply various policy-based low-income financial products to ensure that the reduction of the maximum interest rate does not reduce funding opportunities for low-income people.

For borrowers who cannot extend existing loans, about 300 billion KRW of the ‘Safety Net Loan II’ will be supplied until 2022. Among borrowers who took loans with interest exceeding 20% before the 7th, those who have used the loan for more than one year, whose maturity is within six months, and whose annual income is below 35 million KRW or below 45 million KRW with a personal credit score in the bottom 20% are eligible. The loan limit ranges from a maximum of 20 million KRW up to the balance of the existing high-interest loan.

For low-income and low-credit borrowers who find it difficult to use existing policy-based low-income financial products, the product name of the currently supplied ‘Haetsal Loan 17’ will be changed to ‘Haetsal Loan 15,’ and the interest rate will be reduced by 2 percentage points from 17.9% to 15.9% per annum.

Even if it is difficult to use the product, if the debt burden is excessive, you can receive relief support through debt adjustment by the Credit Counseling & Recovery Service.

A representative from the Korea Inclusive Finance Agency stated, "We will establish and support a customized counseling system to resolve difficulties faced by low-credit groups due to the maximum interest rate reduction," and emphasized, "We will continuously monitor financial hardship counseling cases and regularly share information with related organizations to prevent blind spots from occurring."

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