Starting Next Year, DSR Will Apply to Card Loans... Getting Card Loans Will Become More Difficult

When Total Loan Amount Exceeds 200 Million KRW, Secondary Financial Sector DSR at 50%
Card Loan Interest Rates Also Rising... Limit↓ Interest Burden↑

Photo by Yonhap News

[Asia Economy Reporter Ki Ha-young] Starting next year, the Debt Service Ratio (DSR) will also be applied to long-term card loans (card loans) on a borrower basis. Along with this, card loan interest rates are trending upward, raising concerns that low-income individuals in urgent need of cash will have fewer borrowing options.

According to the industry on the 31st, card loans will be included in the borrower-based DSR starting next year. When calculating the borrower-based card loan DSR, the contract maturity for lump-sum repayment card loans will be limited to a maximum of 3 years. However, for installment repayments, an incentive will be given to reflect up to 5 years. This is to prevent the loophole of extending card loan maturities to increase loan limits.

With the strengthening of DSR from next year, borrower-level DSR will be applied when the total loan amount exceeds 200 million KRW. When borrowing from banks, the ratio is restricted not to exceed 40%, and for secondary financial institutions, not to exceed 50%. From July onwards, the application target will be expanded to borrowers with loans exceeding 100 million KRW. For example, if a borrower with an annual income of 40 million KRW is subject to DSR regulations, they can only receive bank loans with an annual principal and interest sum of up to 16 million KRW. Even if they take additional loans from secondary financial institutions, the principal and interest limit is 20 million KRW.

Until now, even if there were mortgage loans or unsecured loans, card loans, which could be freely obtained when urgent funds were needed, will now be included in the DSR, leading to concerns that borrowing channels for low-income individuals will decrease. Even if they receive card loans, the limit is likely to be reduced.

In addition, card loan interest rates are also on the rise. According to the Credit Finance Association, last month, the average card loan interest rates of seven major card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana Card) ranged from 12.13% to 14.86%. The average of the seven companies was 13.88%, up 0.3 percentage points from the previous month. Samsung Card and Hyundai Card showed a significant increase, rising by 0.99 percentage points and 0.96 percentage points to 14.72% and 14.09%, respectively. The average card loan interest rates of five companies increased compared to October, and except for Shinhan Card and Hana Card, the other card companies recorded average card loan interest rates of 14%.

As the Bank of Korea has hinted at an additional base rate hike in January-February next year, card loan interest rates are expected to continue rising. Card companies are also likely to raise loan product interest rates to reduce the increased cost burden due to higher funding costs.

An industry official expressed concern, saying, "Starting next year, with card loans included in the DSR, it will become more difficult for low-income individuals in urgent need of cash to borrow money," adding, "With rising interest rates, card loan limits will decrease and the interest burden will increase."

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