From July, Credit Loan Limits Expected to Increase to 2-3 Times Annual Salary

Regulations on 'Within Annual Salary' Personal Loans to Expire by End of June
Loan Demand Related to Jeonse Expected to Surge Once Restrictions Lifted

[Image source=Yonhap News]

[Asia Economy Reporter Sim Nayoung] Starting in July, financial consumers at major commercial banks will be able to receive unsecured loans exceeding their annual income (salary). This is because the regulation limiting unsecured loans to within the annual salary will expire at the end of this month. The loan restrictions imposed on banks last year by the Financial Services Commission to curb household loans will be fully lifted.

In December last year, the Financial Services Commission specified the restriction on unsecured loans within annual income as part of the "Risk Management Standards for Household Loans" under financial administrative guidance, setting the expiration date as June 30 of this year. As a result, banks have only provided unsecured loans within the annual income range for about 10 months since August last year. Compared to the past, when loan amounts could reach two to three times the annual income depending on the borrower's credit rating or workplace, the limit itself has dropped to less than half.

According to the financial sector on the 12th, the likelihood of extending the regulation beyond the end of June is low, so from July, as long as the Debt Service Ratio (DSR) criteria are met, it is expected that banks will allow unsecured loans amounting to two to three times the annual salary as before.

The financial authorities are also reviewing the abolition of the current rigid regulation limiting loans within the annual salary, and banks are reportedly working on restoring the previous system to handle unsecured loans exceeding the annual salary starting in July, as this regulation will sunset.

The financial sector anticipates that once the unsecured loan limit regulation is lifted, demand for loans related to Jeonse (long-term lease) will surge. This is because the new Lease Protection Act will mark its two-year anniversary at the end of July. Under the Lease Protection Act, tenants can extend their Jeonse contract period by two years, and rent increases upon contract renewal are capped at 5%, but the right to request contract renewal can only be exercised once. Because of this, tenants who have already exercised this right since August 2020 will face the situation of having to raise their deposit according to market prices when renewing their contracts starting August this year.

For tenants who have borrowed the maximum Jeonse loan amount (500 million KRW), they have no choice but to rely on unsecured loans to cover the increase in Jeonse deposits. If the unsecured loan limit increases to two to three times the annual salary, it will provide some relief.

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