Special Credit Loan Limit for Urgent Real Demand Borrowers in January Next Year... 'Additional Up to 50% of Annual Salary'

However, only allowed within the scope of DSR regulations

[Asia Economy Park Sun-mi, Kim Jin-ho Reporters] The credit loan limit, which has been restricted to 'within annual income,' will be additionally increased from January next year only for urgent real needs such as marriage, funeral, childbirth, and surgery. Even if the credit loan limit has already been reached, additional loans can be obtained within 0.5 times the annual income and up to 100 million KRW through the granted special limit.

According to the financial sector on the 8th, the Korea Federation of Banks has finalized the exception allowance plan for credit loan real demanders through consultations with banks and is awaiting approval from the Financial Services Commission. The core content of this plan is to grant a special limit of 0.5 times the annual income and up to 100 million KRW to the credit loan limit restricted to within the annual income, upon application within 3 or 6 months from the occurrence of the relevant reason, when urgent funds are needed due to marriage, funeral, inheritance tax, childbirth, or surgical hospitalization.

For example, an office worker with an annual income of 50 million KRW who has already received a 50 million KRW credit loan from a bank can borrow an additional 25 million KRW by submitting related supporting documents. However, even though the special limit is given to urgent real demanders, according to the two-step Debt Service Ratio (DSR) regulation applied from January next year, borrowers whose total loan amount exceeds 200 million KRW cannot get a loan if their annual principal and interest repayment amount exceeds 40% of their annual income.

The loan period can be autonomously determined by the bank, but repayment must be made in installments.

For borrowers currently using credit loans with a lump-sum repayment method, to receive a special limit loan with an installment repayment method, they must use a new product different from the existing credit loan product. Although the scope of operation has been broadened to allow special limits through approval by the bank’s credit review committee if there is a need to recognize a borrower as a real demander even if they do not meet the real demand conditions, conversely, additional loans may be rejected depending on the review even if the conditions are met.

The Korea Federation of Banks initially aimed to implement this in November and continued discussions with the banking sector, but it was confirmed that the implementation was delayed due to the need for detailed coordination regarding the reasons for granting special credit loan limits and supporting documents.

Since the Financial Services Commission already announced on October 26 a plan to strengthen household debt management and stated that it is reviewing the 'exceptional application of credit loan limit within one times annual income' aimed at protecting low-income and real demanders with a goal of implementation in November, immediate approval of this plan is anticipated. The Democratic Party and the government also plan to focus discussions on next year’s household loan volume management plan and protection measures for low-income and real demanders at the party-government consultation to be held on the 10th.

A senior official from the Financial Services Commission said, "We have already set the direction to exceptionally apply the credit loan limit within one times annual income only for urgent real demanders, and the detailed contents will follow the method agreed upon by the Korea Federation of Banks and the banking sector," adding, "Although there are concerns about side effects from granting special credit loan limits, since related documents must be submitted to receive exceptions, there is no room for abuse."

Since banks bear the responsibility for screening additional loans for urgent real demanders, it is widely expected that applications will not be possible through non-face-to-face channels. Non-face-to-face applications tend to simplify screening, making loan approval relatively easy. Previously, when excluding jeonse loans from household loan volume management to protect real demanders, non-face-to-face jeonse loan applications by one-homeowners were suspended to prevent jeonse loans from flowing into asset investment rather than real demand.

A bank official explained, "Specific details have not yet been notified to banks, so the system operation plan has not been decided. However, since supporting documents must be received and it would be difficult to verify authenticity non-face-to-face, it is highly likely that restrictions such as in-branch visit applications will be imposed."

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