Found a High Limit Online Bank... But the Loan Interest Rate Is Also High

Increasing Loan Seekers Turning to Internet Banks Amid Bank Loan Restrictions
Complaints Pour in Over High Interest Rates... Forced to Accept Unpleasant Choices

[Asia Economy Reporter Kim Jin-ho] Han Young-hoon (45, pseudonym), who works at a leading domestic conglomerate, was recently shocked when he tried to open a credit limit loan (overdraft account). He personally experienced the "double burden" of reduced loan limits and increased interest costs due to household debt regulations. Although Han, a high-income earner, intended to open an overdraft account of about 100 million KRW, all major commercial banks had reduced their limits to 50 million KRW, leading him to turn to internet-only banks. Ultimately, he took out a loan at an interest rate in the 4% range, which is 1 percentage point higher than commercial banks.

Loan demand is increasingly shifting to internet banks, which are relatively free from total household debt limit management. This is a balloon effect caused by major commercial banks drastically reducing their loan limits uniformly. However, the noticeably higher loan interest rates at internet banks compared to commercial banks are analyzed to be a significant burden for borrowers due to increased interest costs.

According to the financial sector on the 13th, the balloon effect of loan demanders flocking to internet banks due to repeated loan restrictions by commercial banks is becoming more pronounced.

The most representative example is Toss Bank, which launched last week. As of the 8th, just four days after starting operations, it is reported to have used up 60% (300 billion KRW) of its annual loan limit of 500 billion KRW. Currently, 1.2 million people are waiting to join Toss Bank, and considering the current pace, some analyses suggest that loan operations may be suspended within about a week of its launch.

This is attributed to the launch effect, as it is not subject to total volume regulations, making loans relatively easier compared to other places. Toss Bank’s overdraft limit reaches up to 150 million KRW.

K Bank, which began normal operations this year, is also popular among loan demanders. It is considered to still have considerable loan capacity as it is exempt from total volume regulations. Although K Bank reduced its overdraft limit from 150 million KRW to 100 million KRW starting from the 2nd, it still boasts a limit twice as high as major commercial banks.

On the other hand, Kakao Bank’s situation is different. Due to a significant balloon effect already occurring in the first half of this year, it has completely closed its loan doors this month. However, it is focusing on expanding mid-interest rate loans instead of reducing loans to high-credit borrowers.

The problem is that although loan demanders are flocking to internet banks like this, complaints about "high interest rates" are pouring in. Internet banks have significantly lower fixed costs compared to commercial banks due to fewer branches and labor costs, but they are criticized for excessively passing on interest burdens to consumers.

According to the Korea Federation of Banks, the average overdraft interest rates handled by K Bank and Kakao Bank in August were 3.91% and 4.29%, respectively. These rates are 0.4 to 0.8 percentage points higher than the average interest rate of the five major commercial banks (about 3.5%). Toss Bank, which offered the lowest overdraft interest rate of 3.26%, is also reported to have applied interest rates mostly in the 4-5% range to most borrowers.

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