Card Loan Delinquency and Stock-Backed Loans... 20s Hit Rock Bottom

20s Card Loan Delinquency Amount 26.6 Billion → 37.3 Billion KRW
Credit Transaction Loan for Stock Financing Up 172%

[Asia Economy Reporters Sim Nayoung and Song Seungseop] Hwang Sohee (pseudonym, 27), who works at a small business, was shocked when she checked her credit score while looking into loans to rent a jeonse house. Her NICE score was 789, and her KCB score had dropped drastically to 617. Hwang said, "Both were originally in the 900s, but using a long-term card loan for six months was the cause," adding, "About 70% of it can be repaid if I withdraw my investments, but I am currently incurring losses, so I cannot pull out." In this high-interest era, taking out a jeonse loan with a lowered credit score obviously means an increased interest burden. Hwang said, "I need a place to live immediately, so I have to borrow money, and the key is to prevent card loan delinquency afterward, but I feel helpless."

Card loan conditions for people in their 20s have deteriorated much faster than for other age groups. Young people who have maxed out their loan limits at first-tier financial institutions and can no longer borrow money have increasingly turned to second-tier financial institutions, leading to more 20-somethings unable to repay their debts.

According to the "Card Loan Delinquency Trends by Age Group" submitted by the Financial Supervisory Service to Yoon Changhyun, a member of the National Assembly from the People Power Party, the card loan delinquency amount for those in their 20s rose 40.11%, from 26.6 billion KRW in December 2019 to 37.3 billion KRW in December 2021. After the COVID-19 crisis, young people who could not earn money or who borrowed to invest suffered losses, creating a financially vulnerable group in their 20s. In contrast, delinquency amounts decreased for those in their 30s (-6.54%), 40s (-14.9%), and 50s (-11.46%).

As card loan delinquencies increased, the risk of 20-somethings becoming credit delinquents also rose. Looking at the trend of fixed non-performing card loans (bad debts overdue for more than three months) by age group, only the 20s showed a significant increase of 25.88% (26.8 billion KRW → 33.7 billion KRW), while other age groups showed a decline.

Not Enough with Card Loans, Increasing Loans Using Stocks as Collateral

The tendency of people in their 20s to increase loans using stocks as collateral has also become evident. According to securities firms' "Margin Trading Loans by Age Group," loans for those in their 20s increased by 172% (4.5241 trillion KRW → 12.306 trillion KRW). Margin loans secured by deposited securities for the 20s also rose by 55.26% (554.5 billion KRW → 861 billion KRW).

Loans from second-tier financial institutions such as card companies and securities firms originally have higher interest rates than first-tier financial institutions. Coupled with the rising interest rate environment, the increasing interest burden is fatal for 20-somethings with low creditworthiness. If their repayment ability declines, they risk being labeled credit delinquents before even taking their first steps into society.

Is there a way to rescue 20-somethings buried in debt? Experts say that since the causes of youth debt fall into 'livelihood deterioration' and 'investment failure' types, solutions must be provided for both. A report titled "Post-COVID-19 Youth Debt Status and Implications" by Hana Financial Research Institute stated, "To block speculative behavior among those in their 20s, regulations such as the Debt Service Ratio (DSR), which limits total debt repayment relative to income, should raise the loan threshold." It also proposed, "Banks should devise measures to prevent loans from being used for risky asset investments that differ from their original purpose."

Ultimately, there is also the view that youth employment is the answer. Professor Kim Daejong of the Department of Business Administration at Sejong University said, "Starting adult life as a debtor causes problems in maintaining normal financial life even in their 30s and 40s," adding, "What 20-somethings need most is a good economy that supplies many quality jobs."

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