Decline in Yeojeonchae and Expected Base Rate Hold... Will Card Loans and Revolving Credit Catch a Break?

Floating-rate bond interest settles in the 3% range... Base rate also frozen
Reflected in card loans and revolving credit with a time lag

Interest rates on credit-backed bonds, a funding method used by credit card companies and capital companies in the credit finance sector, are showing a downward trend. With the base interest rate expected to remain unchanged, there are forecasts that the interest rates on card loans and revolving credit, which have been quick cash sources for ordinary people, will soon ease.

According to the Korea Financial Investment Association, the interest rate on specialized credit finance bonds (AA+, 3-year maturity) recorded 3.931% as of the 5th of this month. It has consistently stayed in the high 3% range since mid-last month. On the 24th of last month, it dropped to 3.804%. This marks a settling into the 3% range for the first time in about nine months since early June last year. Compared to early November last year, when the bond market tightened and rates rose to 6.088%, this is a drop of more than 2 percentage points.

The base interest rate, which influences the bond market, is also expected to be held steady at the Bank of Korea’s Monetary Policy Committee meeting on the 11th of this month. In a survey conducted by Asia Economy among 21 analysts from domestic and international securities firms, banks, and economic research institutes, all respondents answered that the base interest rate would remain at 3.5% at this month’s Monetary Policy Committee meeting. This is the background for the expectation that credit-backed bond rates will remain stable for the time being.

Therefore, there is growing anticipation that interest rates on card loans and revolving credit, which serve as quick cash channels for ordinary people and are determined based on credit-backed bonds, may decrease somewhat. Since there is a time lag of about 1 to 3 months before market interest rates are actually reflected in product interest rates, it is analyzed that now might be the peak.

According to the Credit Finance Association, the revolving credit interest rates of seven domestic full-service card companies (Shinhan, Samsung, Hyundai, KB Kookmin, Lotte, Woori, and Hana Card) ranged from 15.59% to 18.48% last month. This approaches the legal maximum interest rate of 20%. Revolving credit is a service that allows partial payment of credit card bills and defers up to 90% without any delinquency record to the next month. Card loan interest rates have already started to decline. Although they exceeded 16% on average in the second half of last year, as of the end of February, they have dropped to around 13.51% to 14.91%.

An official from a major card company explained, "As the upward trend in the base interest rate has also slowed, credit-backed bond rates will stabilize for the time being, and after a time lag, product interest rates such as card loans and revolving credit will also decrease. However, uncertainties remain externally in the financial sector centered on banks, and it is still a variable how long the effect of the Financial Supervisory Service’s bond market stabilization fund (Bond Stabilization Fund) purchasing credit-backed bonds will last."

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