Interest Rates Rising... It's Hard to Repay Loans Early or Refinance at Low Rates

Shinhan Bank and Woori Bank Also Impose Early Repayment Penalties (Fees) on Non-Face-to-Face Credit Loans

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 Park Sun-mi] Ahead of the full-scale interest rate hike period, it is becoming increasingly difficult to repay loans before maturity or refinance at a lower interest rate. This is because commercial banks are imposing early repayment fees on non-face-to-face unsecured loans or blocking refinancing loans altogether to manage the total volume of household loans.

According to the banking sector on the 13th, Shinhan Bank decided to impose early repayment penalties (fees) on non-face-to-face unsecured loans starting today. An early repayment penalty is a kind of 'penalty' fee charged by the bank when the borrower repays all or part of the loan principal before the maturity date after receiving the loan. The fee rate is set at 0.8% of the loan amount for fixed-rate loans and 0.7% for variable-rate loans, the same as for face-to-face unsecured loan products.

Among commercial banks, Shinhan Bank is the second after Woori Bank to impose early repayment fees on non-face-to-face unsecured loans. Since July, Woori Bank has applied early repayment penalties of 0.6% for variable-rate and 0.7% for fixed-rate loans on its non-face-to-face unsecured loan products, 'Woori WON Workplace Loan' and 'Woori Main Workplace Loan (Internet)'.

Until now, the banking sector had set early repayment fee rates of about 0.5?0.8% only for general unsecured loans and did not impose separate fees on non-face-to-face unsecured loan products, which had been the focus of customer acquisition competition.

However, as more people use non-face-to-face unsecured loans for quick cash and terminate them early before maturity, banks are changing their strategy to impose early repayment fees on non-face-to-face loans as well to prevent financial losses and manage the total volume of household loans. The market consensus is that other commercial banks are likely to apply this soon. A Shinhan Bank official explained, "The imposition of early repayment fees is a measure to prevent the use of unsecured loan funds for 'debt investment' and to supply funds to real demand borrowers."

Refinancing loans from other banks at lower interest rates are also being discontinued one after another. Following KB Kookmin Bank's complete suspension of refinancing for unsecured, jeonse deposit, and mortgage loans since the 29th of last month, Hana Bank has also blocked its main non-face-to-face loan products, Hana OneQ unsecured loans and Apartment Loans, starting this month.

A bank official said, "Although interest burdens on borrowers are increasing due to rising rates, it has become difficult to refinance loans at lower rates. According to the financial authorities' household debt management measures, if existing loans are repaid and new loans are taken, the credit limit may sharply decrease, so some say that doing nothing is the best response."

Meanwhile, in the political sphere, as loan interest rates continue to rise, voices are calling for continuous improvement of the unreasonable practice of imposing early repayment fees to alleviate borrowers' financial burdens. In response, Financial Services Commission Chairman Ko Seung-beom recently stated at a National Assembly audit, "We are considering measures to reduce early repayment fees to half of the current 1.2% level for policy mortgages such as Didimdoldae, Bogeumjari Loan, and Qualified Loans."

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