Financial Supervisory Service: "Extend Loans at Maturity During Interest Rate Hikes"

Effective Date of Changed Interest Rate When Extending Bank Credit Loans. Photo by Financial Supervisory Service

[Asia Economy Reporter Song Seung-seop] On July 6th, Mr. A decided to extend his credit loan for one year as the maturity date approached. The maturity date was July 27th of the same month, with the loan interest rate raised from 2.0% to 3.0%. Mr. A understood that the changed interest rate would apply from July 28th, after the maturity date, but the bank applied the changed rate from July 6th, the date he requested the loan extension.

The Financial Supervisory Service (FSS) warned that consumers could be disadvantaged depending on when banks apply variable interest rates when extending loans. During periods of rising interest rates, borrowers may end up paying higher interest from the loan extension execution date rather than the maturity date.

Typically, banks distinguish three points in time to apply the changed interest rate during the loan extension process: the maturity date, the loan extension execution date, or a date chosen by the consumer between the maturity date and the loan extension execution date. The available options vary depending on the bank and whether the process is face-to-face or non-face-to-face. Among domestic banks, Daegu Bank (Daegu Eunhaeng) allows consumers to choose their preferred date by visiting in person, and K-Bank offers this option online.

Accordingly, the FSS advised consumers to carefully confirm the date when the financial institution applies the changed interest rate (such as the loan extension execution date or maturity date) by inquiring with staff. If the financial institution applies the changed interest rate from the loan extension execution date, it is advantageous to delay the execution date until the maturity date. If consumers can select the date for applying the changed interest rate, it is better to choose the maturity date during periods of rising interest rates.

Especially when applying for loan extensions non-face-to-face (online), it is essential to verify the date of the changed interest rate application on the online platform. In the case of K-Bank, consumers can directly choose between applying the changed interest rate immediately at the loan extension execution time or applying it on the maturity date through the online interface.

The FSS stated, “We plan to clearly specify the timing of the changed interest rate application when extending loans.”

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