"If You Got Promoted or Changed Jobs, Apply for the Interest Rate Reduction Request Right Away" [Practical Financial Tech]

Interest Burden on Borrowers Increases Amid Full-Scale Rate Hike
Focus on 'Geumri Inha Yogeugwon' to Save Even a Penny
Over 760,000 Users in the Past 5 Years

Commuters and other citizens are walking at Gwanghwamun Station on the Seoul subway.
[Image source=Yonhap News]

[Asia Economy Reporter Kim Jin-ho] Kim Beom-su (40, pseudonym), who works at a large corporation, borrowed 40 million KRW through a credit loan from a commercial bank at the end of last year. With a credit rating of grade 3, Kim received an annual interest rate of 3.5%, including preferential rates such as salary transfer benefits. Recently, Kim was promoted to manager through an internal personnel change at his workplace, increasing his annual salary by about 5 million KRW. Following his promotion, Kim asked the bank if they could lower his interest rate. After being told that the rate could be reduced by 0.3 percentage points, Kim was able to save 120,000 KRW annually on interest thanks to the 'right to request a rate reduction.'

As the Bank of Korea is expected to raise the base interest rate twice by early next year, loan interest rates are soaring rapidly. Combined with the financial authorities' total household debt management measures, loan interest rates have risen by more than 1 percentage point in just one year. Borrowers are increasingly worried about the soaring loan interest rates. There is concern that the increased interest burden due to rising rates will negatively impact households.

With the full-scale rise in interest rates, financial authorities and experts advise paying close attention to the 'right to request a rate reduction.' As loan interest rates rise rapidly, consumers are encouraged to take a more proactive approach to save even a small amount of interest.

The right to request a rate reduction allows individuals to ask banks or other financial institutions to lower their loan interest rates. For household loans, if certain conditions are met?such as ▲employment ▲promotion ▲income increase ▲improvement in credit rating ▲acquisition of professional certifications (e.g., doctor, accountant) ▲decrease in debt ▲increase in assets?borrowers can request a rate reduction.

This right can be easily exercised by anyone through the financial institution’s branch, internet banking, or mobile banking. If the borrower submits supporting documents to verify whether they meet the conditions for a rate reduction, the financial institution will reassess and notify the borrower of the result within 10 business days from the date of application via email, text message, or phone call.

If the review finds that the borrower's credit score has significantly improved or that conditions such as employment or promotion are met, the financial institution will guide the borrower on the rate reduction. The borrower can then review the reduced terms and sign the agreement.

The right to request a rate reduction, which had been voluntarily implemented since 2002, has been actively promoted since its legalization in 2019. The system was institutionalized based on the recognition that loan interest rates calculated on the basis of the credit status at the time of the original contract are inappropriate when the consumer’s credit status improves after the loan agreement.

According to data on 'bank sector rate reduction request performance' received by Democratic Party lawmaker Yoon Kwan-seok from the Financial Supervisory Service, a total of 759,701 customers requested and received loan interest rate reductions from 19 banks between 2016 and 2020. The annual figures were 115,629 in 2016, 95,903 in 2017, 115,233 in 2018, 207,455 in 2019, and 225,481 in 2020. Including 85,720 in the first half of this year, the total number over five and a half years reached 845,421. The number of requests per year also increased dramatically: 119,361 in 2016, 161,674 in 2017, 285,127 in 2018, 549,609 in 2019, and 714,141 in 2020, marking a 498.3% increase over five years.

The right to request a rate reduction is expected to become even more active in the future. Financial authorities and banks have begun full-scale discussions to alleviate the burden on financial consumers. They plan to provide more comprehensive information when guiding consumers about the right, improve explanations for reasons for rejection, and launch extensive promotions via text messages and other channels. Measures to significantly increase the acceptance rate are also expected to be prepared soon.

In particular, the administrative guidance period for the right to request a rate reduction will be extended until the end of next year for mutual finance businesses, which are not yet legalized. Mutual finance refers to unit cooperatives such as Nonghyup, Suhyup, and Chukhyup.

The Financial Supervisory Service has instructed mutual finance institutions to provide information about the content and procedures for exercising the right to request a rate reduction through their websites, branches, and mobile applications. For mutual finance, if the borrower's credit status improves, the right to request a rate reduction can be exercised regardless of the number of applications or timing.

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