Breathing Room in Car Finance Rates... Dropping to the 5% Range

Down 2%P Compared to Early Year
5% Interest Rates Appear Not Only in Card Companies but Also in Capital Firms

Since the end of last year, the rapidly rising auto installment loan interest rates have stabilized and dropped to the 5% range. This reflects a time-lagged effect of market stabilization, including the base interest rate freeze.

According to the Credit Finance Association on the 23rd, the auto installment interest rate range of six major card companies?Shinhan, Samsung, KB Kookmin, Hana, Woori, and Lotte?is 5.4~9.2% (based on Hyundai Grandeur, 30% cash purchase ratio, 36-month loan period). Woori Card (5.4%), Shinhan Card (5.8%), and Hana Card (5.9%) have their lower bounds in the 5% range. Compared to the lower bound of 7.3% at the end of last year, this represents a drop of about 2 percentage points over the first quarter. The upper bound is also showing signs of falling to the 8% range, unlike the rise to the 11% range at the beginning of the year.

Interest rates of capital companies, which generally have higher rates than card companies due to greater loan cost burdens, are also declining. For example, Lotte Capital’s highest interest rate is 13.19%, but its lowest rate is 5.41%, comparable to the lower bound of card companies. Hyundai Capital, the number one in auto finance, also offers a lowest interest rate of 5.7%. Unlike card companies, capital companies do not have merchant fees, so despite higher loan costs, they are offering products in the 5% range.

The industry views this as a result of the time-lagged effect of the stabilization of specialized credit finance bond interest rates. According to the Bond Information Center of the Korea Financial Investment Association, the interest rate of specialized credit finance bonds (AA+, 3-year maturity), a major funding source for card and capital companies, was 3.880% as of the 14th. Since falling below 4% in mid-last month, the rate has remained in the 3% range for over a month. On the 24th of last month, it dropped to 3.804%, a decrease of 2.284 percentage points compared to 6.088% in early November last year when the bond market was severely tight.

If the Bank of Korea maintains the base interest rate freeze and the bond market remains stable, it is expected that auto installment interest rates will form a bottom at a lower level. Additionally, with major automakers recently releasing or preparing to release new models one after another, auto purchase demand may increase, potentially accelerating the timing of installment interest rate reductions. A credit finance industry official explained, "Since already procured funds must be exhausted before using cheaper funds, market interest rates are reflected with a time lag," adding, "The decline in specialized credit finance bond market rates, along with auto purchase demand, will influence the speed of decline in installment finance interest rates."

On the 30th, Hyundai Motor's 'Sonata The Edge' was unveiled at the '2023 Seoul Mobility Show Press Briefing' held at Kintex in Goyang, Gyeonggi Province. Photo by Jinhyung Kang aymsdream@

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