Non-face-to-face Credit Loans Also Have Early Repayment Penalties: "Preventing Customer Attrition" vs "Reducing Product Appeal"

Positive for Managing Total Household Loans and Preventing Customer Attrition

[Asia Economy Reporter Park Sun-mi] Major commercial banks are facing a dilemma over imposing prepayment penalties on non-face-to-face loan products. While it is necessary to charge prepayment penalties on non-face-to-face loan products to manage the total volume of household loans and prevent customer attrition, doing so could reduce the appeal of these products and make it difficult to attract new customers.

According to the banking sector on the 20th, Woori Bank will apply prepayment penalties to its non-face-to-face credit loan products, ‘Woori WON Workplace Loan’ and ‘Woori Main Workplace Loan (Internet),’ starting from the 28th. Woori Bank is the first among commercial banks to charge fees for early repayment of non-face-to-face products. A prepayment penalty is a kind of ‘penalty’ fee imposed by banks when borrowers repay all or part of the principal before the maturity date after taking out a loan.

Until now, commercial banks have only set prepayment penalty rates of around 0.5-0.8% for general credit loans and have not charged separate fees for non-face-to-face credit loan products, which have been the focus of customer acquisition competition. However, with Woori Bank deciding to apply a prepayment penalty rate of 0.6% for variable interest rates and 0.7% for fixed interest rates, some banks are also beginning to consider this.

An official from Bank A, which is planning to review the introduction of prepayment penalties, explained, "As there are more investment opportunities such as stocks, many cases have emerged where customers use credit loan products for quick cash and then terminate early or switch to other banks with lower interest rates." He added, "When customers terminate early without fulfilling the maturity, banks suffer losses in fund management and face difficulties in managing the total volume of household loans."

Woori Bank also cited the frequent new subscriptions and cancellations of credit loan products due to recent public offering subscriptions as the reason for the difficulty in managing the total volume of household loans, which led to the introduction of prepayment penalties.

However, there are concerns that if commercial banks consecutively introduce prepayment penalties while internet banks do not charge fees on non-face-to-face credit loans, they may lose competitiveness. Especially at a time when discussions about base rate hikes are emerging, it may be difficult to attract customers if switching becomes difficult in the future.

An official from Bank B expressed concern, saying, "One of the advantages of internet non-face-to-face credit loans was the ease of borrowing and repayment. While the introduction of fees may help prevent existing customers from leaving, it could make it harder to attract new customers."

It is also difficult to avoid criticism that banks are focusing solely on fee profits without sharing the interest burden with borrowers during a period of interest rate hikes.

Prepayment penalties can be an obstacle for consumers who want to switch to products with lower interest rates or repay early. Previously, the Financial Consumers Federation pointed out that the prepayment penalty income from loans at the five major commercial banks reached 1.0488 trillion won over four years from 2017 to 2020, and argued that prepayment penalties should be abolished to promote early repayment as part of the government's household debt management efforts.

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