Average Interest Rate on Credit Loans at 5 Major Banks All Exceed 5%

Average Interest Rate on New Credit Loans in June Exceeds 5%
Interest Rates Close to 5% Applied Even for Credit Scores in the 900s
Rates Soar to Mid-6% for Scores in the High 800s
With Further Base Rate Hikes, Surpassing 7% Is Only a Matter of Time

On the 7th, a scene at a bank counter in downtown Seoul shows the ongoing trend among major commercial banks to lower loan interest rates while raising interest rates on regular savings and installment savings products. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Sim Nayoung] As of last month, the average interest rates on unsecured loans from the five major banks all exceeded 5%. Even borrowers with credit ratings of 1 to 2 (credit scores in the 900s) were subject to interest rates close to 5% when taking out new loans. For those with credit scores in the high 800s, corresponding to grades 3 to 4, rates surged to the mid-6% range. Following the Bank of Korea's big step hike (a 0.5 percentage point increase in the base rate at once) in July, the banking sector predicts that if the base rate is raised two to three more times by the end of the year, unsecured loan interest rates could reach the 7% range.

Looking at the average unsecured loan interest rates by bank (as of June) disclosed on the Consumer Portal of the Korea Federation of Banks on the 21st, Shinhan Bank had the highest rate at 5.46%, followed by KB Kookmin Bank (5.39%), Hana Bank (5.14%), NH Nonghyup Bank (5.05%), and Woori Bank (4.90%).

Even borrowers with grades 1 to 2 faced interest rates ranging from 4.01% to 4.75% when taking out unsecured loans. Just a year ago, these rates were between 2.56% and 2.85%, so the upper limit has jumped by about 2 percentage points. For grades 3 to 4, rates were 3.13% to 4.14% in June last year but rose to 5.27% to 6.19% in June this year. These figures represent the interest rates on new household loans issued by banks during the respective months.

The increase in unsecured loan interest rates is somewhat more pronounced compared to mortgage loans. As of June, the average interest rates for mortgage loans (installment repayment method) at the five major banks ranged from 4.04% to 4.78%, which is about 1.5 percentage points higher than the 2.55% to 2.96% range a year ago, but still slightly lower than unsecured loan rates.

An official from a commercial bank explained, "Basically, mortgage loans are secured loans, so their interest rates are relatively low, whereas unsecured loans are based on credit, so their interest rates are higher. Also, the variable interest rates on mortgage loans are calculated based on the COFIX rate announced monthly, so their increase is relatively slow. In contrast, unsecured loan interest rates are tied to the 6-month financial bond benchmark rate, which changes daily, so they rise quickly whenever the Bank of Korea raises the base rate."

Unsecured loan interest rates are expected to continue rising. Another bank official said, "If the Bank of Korea raises the base rate about three more times by the end of the year, the average unsecured loan interest rate at the five major banks could exceed 6% and possibly reach the 7% range." As interest rates rise, the total amount of unsecured loans at banks continues to decline. The outstanding balance of household unsecured loans at the five major banks has decreased continuously from January to June this year. It dropped by a total of 8.8796 trillion KRW from 139.5575 trillion KRW in December last year to 130.6789 trillion KRW in June this year.

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