"Limits Are High but Why Are Interest Rates Like This?"... In-Bank Loan Rates Higher Than the Big 5 Banks (Comprehensive)

Increase in Borrowers Seeking Internet Banks Amid Bank Loan Restrictions
Complaints Over High Interest Rates... Forced to Accept Unpleasant Terms

The third internet bank, Toss Bank, scheduled to launch on the 5th, is drawing attention from the banking sector. Even before its launch, it announced the release of groundbreaking interest rate products, including the highest deposit interest rate in the banking sector at 2% per annum and a minimum loan interest rate in the high 2% range, causing tension not only among other internet banks but also among commercial banks. Especially as financial authorities tighten regulations on household loans, leading to rising loan interest rates and restrictions on loan limits, Toss Bank's announcement of unsecured loans with a maximum limit of 270 million won is expected to attract demand from so-called "loan refugees." The photo shows the Toss Bank headquarters in Gangnam-gu, Seoul, on the 4th. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Jin-ho Kim] 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 hardship" of reduced loan limits and increased interest burdens due to household debt regulations. As a high-income earner, Han aimed to open an overdraft account of about 100 million KRW, but since the limits at major commercial banks were all reduced to 50 million KRW, he turned to internet-only banks and ended up taking out a loan at an interest rate in the 4% range, which is 1 percentage point higher than commercial banks.

Loan demand is increasingly focused on 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 demand shifting to internet banks due to successive loan restrictions by commercial banks is becoming more pronounced.

The most representative case 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 about a week after 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 started 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 such as branches and labor compared to commercial banks, but there are criticisms that they are excessively passing on the interest burden to consumers.

Criticism is also raised that they impose high interest rates taking advantage of the higher loan barriers at commercial banks. One borrower said, "The fact that the limit is high and execution is possible when everyone else is stopping loans is definitely an advantage," but also pointed out, "It is hard to understand why the interest rates are significantly higher than those of commercial banks."

Meanwhile, 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. This is 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.