KakaoBank "Half of Medium Credit Borrowers Improve Their Credit Scores"

[Asia Economy Reporter Kiho Sung] More than half of KakaoBank's mid-credit loan borrowers used their loan funds to repay high-interest loans. As loan repayments continued, borrowers were able to reduce their interest burden while improving their credit scores, according to analysis.

According to KakaoBank on the 29th, among customers who took out mid-credit loans and mid-credit plus loans at KakaoBank during August this year, 21,100 customers had non-bank loans such as savings banks, capital companies, and card companies at the time of loan execution.

By the end of August, 63% of these 21,100 customers, or 13,200, showed a decrease in their non-bank loan balances. Customers with mid-credit loans reduced their balances by an average of 4.9 million KRW, while mid-credit plus loan customers reduced theirs by 3.6 million KRW. Considering the average loan amounts for mid-credit and mid-credit plus loans, it is estimated that about half of the loan proceeds were used to repay relatively high-interest non-bank loans.

A KakaoBank official explained, "The average interest rates for customers who took out mid-credit and mid-credit plus loans in August were 5.7% and 9.5%, respectively, which are competitively lower than the average loan interest rates of around 12-15% in savings banks, capital companies, and card companies," adding, "The total repayment amount by these customers was approximately 55.9 billion KRW."

Furthermore, while taking out a loan generally causes a slight drop in credit scores due to increased debt, customers who partially or fully repaid non-bank loans experienced a greater effect from the reduction of high-interest loans compared to the increase in debt, resulting in improved credit scores. Among mid-credit loan customers whose non-bank loans decreased, the average credit score (based on KCB) rose from 736 to 766, an increase of about 30 points, while mid-credit plus loan customers saw an increase from 660 to 667.

The proportion of customers who maintained non-bank loans even after receiving mid-credit and mid-credit plus loans from KakaoBank was 27.0%, with those whose balances increased accounting for less than 10%.

A KakaoBank official stated, "It has been confirmed that using KakaoBank's loan products for mid- and low-credit customers helps reduce loan interest burdens and improve creditworthiness," adding, "We will strive to further refine our credit evaluation models so that more mid- and low-credit customers can benefit."

Since June this year, KakaoBank has applied a new credit evaluation model for mid- and low-credit customers. It has actively expanded loans for these customers by raising the loan limit to 100 million KRW. The proportion of mid- and low-credit borrowers' balances relative to unsecured credit loan balances, which was 10.9% at the end of July, expanded to 14.6% by October.

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