Minus Account Interest Rate Approaching 4% Range

Top 5 Banks and Internet Banks, Average Interest Rate Up to 3.79%
0.7 Percentage Point Increase in One Year
Interest Rates Expected to Rise Further Due to Base Rate Hike

Hana Bank announced that it will limit the personal credit loan ceiling to "within the range of individual annual income." The photo shows the Hana Bank headquarters branch in Jung-gu, Seoul, on the 27th. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Kim Jin-ho] Jung Jun-ho (34, pseudonym), an office worker employed at a leading domestic conglomerate, was recently surprised when he extended the maturity of his credit limit loan (overdraft) at a major commercial bank. The loan interest rate, which was in the mid-2% range last year, jumped to the high 3% range. Jung said, "I got promoted this year and my credit score improved, but on the contrary, the loan interest rate rose too much, increasing my burden," adding, "I personally felt that the interest rate hike is becoming full-fledged."

The interest rates on overdraft loans, which office workers commonly use as emergency funds, are rising rapidly. Just a few months ago, the common 2% range rates have now disappeared. With the base interest rate hike expected soon and financial authorities likely to tighten household loan regulations further, the pace of loan interest rate increases is expected to accelerate. From the second half of this year, the interest rates on new and renewed overdraft loans are expected to exceed 4%.

According to the Bankers Association on the 28th, the average overdraft loan interest rates handled last month by the five major commercial banks?KB Kookmin, Shinhan, Woori, Hana, NH Nonghyup?and internet-only banks such as K Bank and Kakao Bank ranged from 3.26% to 3.79% annually. This is a 0.7 percentage point increase compared to a year ago (2.43% to 3.04%).

Looking at last month's average overdraft loan interest rates, K Bank had the highest at 3.79%. Kakao Bank (3.73%), KB Kookmin Bank (3.70%), Woori Bank (3.55%), Hana Bank (3.44%), and Shinhan Bank (3.35%) followed. The 2% range overdraft loans have disappeared across both the five major commercial banks and internet banks. Compared to a year ago, the speed of loan interest rate increases is more palpable. In July last year, among the seven commercial banks handling overdraft loans, only Kakao Bank recorded rates in the 3% range. Shinhan Bank had the lowest at 2.43%, while Nonghyup Bank (2.70%), Woori Bank (2.76%), and K Bank (2.80%) all recorded mid-to-high 2% rates.

The rapid rise in loan interest rates over just one year is because banks raised their own additional margins, which serve as the basis for calculating loan interest rates, by a larger margin than the base interest rate. The financial bond and 3-month KORIBOR rates, which serve as the basis for credit loan interest rate calculations, only increased by 0.07 percentage points over the past year, but the rate hikes applied to consumers were about ten times higher.

The reason for the larger increase in additional margins is that financial authorities recommended curbing the growth rate of household loans and reducing preferential interest rate benefits related to credit loans concentrated on high-credit borrowers. From the banks' perspective, the only ways to suppress household loans as desired by financial authorities are to reduce loan limits or raise interest rates.

However, financial consumers are voicing complaints about the sharp rise in loan interest rates. Even borrowers like Jung, who got promoted, received a salary increase, and improved their credit scores, could not avoid steep loan interest rate hikes. For borrowers with lower credit ratings, the interest rate increase is known to reach up to 1 to 2 percentage points.

The problem is that with the Bank of Korea raising the base interest rate this month, loan interest rates may rise further. As the base interest rate increases, the current overdraft loan interest rates in the mid-to-high 3% range are expected to jump into the 4% range. Additionally, with financial authorities indicating plans to strengthen loan regulations further in the second half of this year, banks are expected to reduce preferential interest rates more, making the loan interest rate increases felt by consumers even steeper.

A banking industry official advised, "With the base interest rate rising, loan interest rates inevitably will increase more steeply," adding, "Borrowers need to prepare for a significant increase in interest burdens by managing their debts carefully."

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