Expanding Uses of Interest Rate Reduction Requests... Should You Try Lowering Your Loan Interest Rate?

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[Asia Economy Reporter Song Seung-seop] As loan interest rates soar due to the base rate hike, the right to request a lower interest rate is gaining attention. This is because it allows borrowers to reduce their interest burden by reflecting their improved financial status. The sectors eligible for utilizing the right to request a lower interest rate are also expanding. However, there are growing criticisms that the right to request a lower interest rate is not actually accepted in practice, raising calls for measures to enhance its effectiveness.

According to the financial sector on the 12th, the Financial Services Commission recently announced that it has prepared amendments to the Enforcement Decree of the Credit Cooperatives Act and supervisory regulations. This is to grant the right to request a lower interest rate to users who have borrowed loans from mutual finance sectors such as Nonghyup, Suhyup, and Shinhyup.

The right to request a lower interest rate is the right to ask financial institutions to reduce loan interest rates. It can be requested when economic or financial conditions improve through employment or job change, when credit scores increase, or when assets grow. It applies to both personal and corporate loans but excludes cases where interest rates are fixed, such as policy fund loans or loans secured by deposits or savings.

Until now, the right to request a lower interest rate could be used when loan contracts were made with banks, insurance companies, savings banks, and specialized credit finance companies. Although the right was operated in mutual finance sectors, it was done at the level of administrative guidance. With its legalization last month, it will be available based on law starting July 5.

The enforcement decree includes detailed provisions on the requirements and procedures for requesting a lower interest rate. Cooperatives and central associations receiving such requests must notify the acceptance or rejection reasons within 10 business days. If cooperatives and central associations fail to inform that the right to request a lower interest rate can be exercised, a fine of 10 million KRW will be imposed.

Additionally, cooperatives and central associations are required to provide information on the right to request data submission for verification, conditions for recognizing the request, procedures, etc., on their websites. The decree also establishes the basis for the storage and management of records such as receipt and review results.

Related bills are also being proposed for the loan shark sector, where the right to request a lower interest rate is currently unavailable. Last month, Kim Young-joo, a member of the Democratic Party, proposed a partial amendment to the “Act on Registration of Loan Business and Protection of Financial Consumers.” The main point is to guarantee the use of the right to request a lower interest rate even when loans are used from loan shark companies. There is also a provision imposing a fine of up to 20 million KRW for violating the obligation to notify about the right to request a lower interest rate.

Rep. Kim explained, “There were many criticisms of reverse discrimination because the right to request a lower interest rate could only be used mainly in first-tier financial institutions such as banks with low interest rates. This amendment establishes a legal basis so that loan shark users can also receive interest rate reduction benefits whenever factors positively affecting their creditworthiness occur.”

The right to request a lower interest rate in the loan shark sector was also promoted by financial authorities in 2017 as part of the “3rd National Experience 20 Major Financial Practice Reforms.” Although the plan was to start sequentially from large companies, its introduction was canceled due to the lack of legal grounds.

Some argue that not only should the scope of use for the right to request a lower interest rate be expanded, but the utilization rate should also be increased. According to the Financial Services Commission, the number of applications for interest rate reduction last year totaled 910,000, with an acceptance rate of 37.1%. Although the number of applications increased compared to 200,000 in 2017, the acceptance rate nearly halved from 61.8% at that time.

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