Still Burdensome Yeojeonchae... Car Installment Interest Rates Soaring

New Car Installment Interest Rates Exceed 11%... Upward Trend Expected to Continue

[Asia Economy Reporter Minwoo Lee] Auto installment loan interest rates continue to soar in double digits. With additional domestic and international base rate hikes anticipated and the bond market still tight, it is expected that credit card companies will tighten their belts for the time being, making it difficult for the high-interest rate trend to subside.

According to the Credit Finance Association on the 10th, as of the previous day, the auto installment loan interest rate range for the five major credit card companies?Shinhan, Samsung, Hana, Woori, and Lotte?was 7.3?11.1% (based on Hyundai Grandeur, 20% cash purchase ratio, 36-month loan period). At the beginning of last month, the upper limit of the interest rate was in the 10% range, but it has been recording rates in the 11% range since the end of the year. Compared to early last year when it was only in the 2% range, the interest burden has increased about fivefold. For capital companies such as BNK Capital (14%) and Hana Capital (12%), some have seen the upper limit of interest rates exceed 12%.

Used car installment loan interest rates are also soaring. According to the Credit Finance Association, as of the end of last month, Shinhan Card’s used car installment loan interest rate was above 8% for 64.3% of cases (excluding direct products). The proportion with rates above 12% also approaches 10%. For capital companies, some firms have average interest rates exceeding 12%.

Although the interest rate rise of specialized credit finance bonds, a funding source for the credit finance industry without deposit-taking functions, has somewhat slowed, it remains significantly higher than in the past, suggesting a strategy to avoid aggressively increasing loans. According to the Korea Financial Investment Association, as of the 8th, the interest rate for specialized credit finance bonds (AA+, 3-year maturity) was 5.307%. This is the lowest since 5.086% on September 21 last year. After reaching a record high of 6.088% on November 7 last year?the highest since statistics began in 2010?it has somewhat stabilized. Nevertheless, compared to the mid-2% range at the beginning of last year, it remains more than twice as high.

With domestic and international base rate hikes still pending, it is difficult to predict that interest rates will easily calm down. The U.S. Federal Reserve (Fed) has indicated a continuation of the rate hike trend, and the Bank of Korea’s Monetary Policy Committee is likely to raise the base rate by 0.25 percentage points to 3.5% at its first meeting of the year on the 13th.

A credit finance industry official explained, "The heads of each credit card company are focusing on internal management to the extent that they have set 'survival' as the keyword for the new year. With funding costs rising due to base rate hikes and market funding conditions still uncertain within the year, financial product screening is being conducted conservatively, and various promotional and discount events are being restrained compared to the past."

[Image source=Yonhap News]

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