'Domino Loan Suspension'... People Ultimately Turning to Private Loans (Comprehensive)

Expansion of Loan Regulations to Second-Tier Financial Institutions Including Banks and Savings Banks
Real Borrowers Forced to Knock Outside the System
Financial Services Commission Plans to Strengthen Monitoring of 'Consumer Inconvenience'

[Asia Economy Reporter Kim Jin-ho] Office worker Park Jeong-ho (32, pseudonym) is facing great concerns ahead of his wedding in October. The main reason is that most of his funds have been poured into securing a house amid skyrocketing prices, leaving insufficient funds for wedding expenses and other wedding-related costs. He tried to use his existing overdraft account to finance the costs, but his plan was disrupted due to recent 'loan regulations' that significantly reduced the credit limit instead of extending the maturity. Having difficulty securing funds, Mr. Kim ultimately decided to borrow wedding funds through peer-to-peer (P2P) lending.

According to the financial sector on the 23rd, indiscriminate loan restrictions by financial authorities are rapidly spreading 'anxiety' among real demand borrowers. The tightening of household loans is expanding comprehensively from banks to savings banks, mutual finance, insurance, and card companies. Real demand borrowers who urgently need funds are now forced to turn to P2P finance and private lending.

Major commercial banks have recently stopped loan products and also reduced credit limits when extending existing overdraft accounts. Previously, limits were only reduced if the account was opened but unused for a year, but under the government's strengthened household loan management policy, a 10-20% reduction in limits will now be applied to existing loans as well. The situation is similar in the secondary financial sector.

Consumers' anxiety is growing day by day due to the financial sector's successive loan suspension measures. Due to the stringent loan regulations, not only tenants seeking jeonse (long-term deposit lease) but also so-called real demand borrowers such as young people without homes are facing a loan cliff. The impact is significant as loan regulations have been simultaneously strengthened not only in banks but also in secondary financial institutions such as savings banks and mutual finance.

Real demand borrowers in panic are turning to P2P finance and private lending. Since all regulated financial institutions from banks to savings banks have blocked loans, they are reluctantly seeking alternatives. P2P and private lending are not subject to various government loan regulations such as the Debt Service Ratio (DSR).

In fact, on real estate and wedding preparation communities, posts such as "The moving date is just around the corner, but jeonse loan has been blocked and additional loans from secondary financial institutions like savings banks or Saemaeul Geumgo have become difficult, so I feel helpless" and "My financial plan is disrupted, so I am prioritizing P2P finance" can be easily found.

However, P2P companies and private lenders charge significantly higher interest rates compared to primary financial institutions, placing a heavy burden on borrowers. The average interest rate for P2P mortgage loans is 7-10% per annum, and personal credit loans range from 5-20% per annum. For private lending, the average loan interest rate is about 17%.

Therefore, there are criticisms that indiscriminate government loan regulations have pushed real demand borrowers who urgently need funds to pay several times higher interest rates. A financial sector official said, "There is a high risk that real demand borrowers will be collateral damage due to uniform household debt measures," adding, "Delicate policies are needed to precisely analyze real demand and speculative demand so that those who truly need loans are not driven to private finance."

Meanwhile, financial authorities have moved to ease concerns about a 'domino effect of loan denials' in the market, stating that "the possibility is very low." The Financial Services Commission pointed out in a press release that the likelihood of measures such as suspension of mortgage loans by NongHyup Bank and NongHyup Central Association spreading throughout the financial sector is very low. This is because most financial institutions, including major commercial banks, still have ample room to meet their household loan targets.

A Financial Services Commission official said, "We will closely monitor whether the suspension of loan handling by some banks such as NongHyup Bank causes inconvenience to financial consumers."

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