"Interest Rates Rose Again?" 'Yeongkkeul' Borrowers Cry Out

Soaring Interest Rates... Interest Burden
Lee Chang-yong, BOK Governor: "Rate Hikes Continue Due to Inflation... Difficult to End Before the US"

Due to recent increases in loan interest rates, the number of borrowers sighing deeply is growing. According to the Bank of Korea, the trend of rising interest rates is expected to continue for the time being. [Image source=Yonhap News]

[Asia Economy Reporter Han Seung-gon] "I feel frustrated every day just thinking about paying the interest."

Kim, a late-30s office worker, has been under severe stress recently due to the interest rate hikes. The Bank of Korea (BOK) raised the base interest rate by 0.25 percentage points (p) last week, marking the first time it has increased rates four consecutive times. With bank loan interest rates also rising further, the burden of household debt can only grow heavier. Kim said, "I bought my house by 'Yeongkkeul' (borrowing to the limit), and a significant portion of my salary goes to repaying bank loans," adding, "It was my choice and decision, but the interest rates are rising too much," sighing deeply.

According to the BOK, as of the end of the second quarter this year, the outstanding household loans amounted to 1,757.9 trillion won (1,869.4 trillion won including credit card usage). Considering that the base interest rate has been raised seven times (2%p) since August last year, the increased household interest burden over about a year exceeds 27 trillion won. The average annual interest burden increase per borrower is approximately 1.3 million won.

Moreover, the interest that borrowers have to bear may increase even further. This is because actual bank loan interest rates are calculated by adding a margin to the base interest rate. The rapid surge in loan interest rates is why borrowers' debt burdens are growing heavier.

Park, a company employee in his 40s, said, "I didn't really worry much about interest rates on bank loans," but added, "It seems this is the first time bank interest rates have risen so sharply." He continued, "The best option seems to be to quickly settle the loans even if it means pushing oneself too hard." Another office worker in his late 20s, Choi, said, "I settled my loans with help from family and relatives, and I realized how scary interest rates can be," adding, "I now plan not to take out loans unless in special cases."

Especially, those in their 20s and 30s who took out loans during last year's low-interest period, known as Yeongkkeul borrowers, are expected to face significant burdens during this interest rate hike period. According to a BOK survey, household loans for people in their 20s and 30s stood at 475.8 trillion won as of the end of last year, an increase of 35.2 trillion won compared to a year earlier. The proportion of vulnerable borrowers is 6.6%, higher than the average of other age groups (5.8%). The loan-to-income ratio for borrowers in their 30s reaches 280%.

Lee Chang-yong, Governor of the Bank of Korea, stated that it is difficult to end interest rate hikes before the United States. This is interpreted to mean that interest rate increases must continue until inflation subsides.
[Image source=Yonhap News]

Meanwhile, the variable interest rate on bank mortgage loans (Judaemdae) has re-entered the 6% range. The COFIX (Cost of Funds Index), which serves as the benchmark for variable mortgage loan rates, rose by a record 0.52 percentage points. This reflects the 'big step' 0.50 percentage point hike in the base interest rate by the BOK last month to curb the rapid rise in inflation.

On the other hand, the interest rate hikes are expected to continue for some time. Lee Chang-yong, Governor of the Bank of Korea, said in an interview with the media on the 27th (local time) at Jackson Hole, Wyoming, USA, "It is difficult to end the rate hikes before the US," adding, "Korea's inflation is largely influenced by external factors such as oil prices, and since it is hard to predict when oil prices will rise again, it is difficult to mention the timing of ending rate hikes. As long as the inflation rate remains at a high level (4-5%), the rate hike stance will be maintained." This is interpreted as a commitment to continue raising interest rates until inflation subsides.

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