Household Loan Crisis: Borrowers Turn to Savings Banks for Small Loans

A 40-year-old delivery worker, identified as A, recently sought credit loans from several major banks but was rejected due to a credit score in the 600s. Already utilizing credit card loans, A found it difficult to secure additional loans and was unable to pass the screening process for insurance loans. Consequently, A is now considering small credit loans from savings banks, despite interest rates nearing 20%.

As financial authorities tighten household debt management, the barriers to loans from banks have increased, leading vulnerable borrowers in need of quick cash to flock to small credit loans from savings banks. With regulations expanding to include popular quick cash options like credit card loans and insurance contract loans, demand for small credit loans, which are relatively less affected by these regulations, has surged.

According to the Financial Supervisory Service's financial statistics information system, the total amount of small credit loans from 79 savings banks reached 1.4466 trillion won in the first quarter of this year. This marks a 19.1% increase from 1.2146 trillion won in the same period last year, the highest level since related statistics began being published in 2008.

Small credit loans are typically available without collateral, with limits ranging from 3 million to 5 million won. Loans under 100 million won are exempt from the total debt service ratio (DSR) regulations, making them less impacted by regulatory measures compared to other credit loans. In fact, while household loans from savings banks subject to DSR regulations decreased in June, small credit loans, which fall into a regulatory gray area, are expected to continue increasing in the second quarter.

A representative from a major savings bank noted, "Small credit loans saw a slight decline in May but rebounded to April levels in June. Given the tightening of loan regulations, we expect this upward trend to continue for the time being."

This trend reflects the overall increase in loan barriers across the financial sector. Recently, banks have been reducing limits on mortgage and credit loans in line with the government's household loan management policies. As a result, borrowers in need of quick cash have fewer options, leading them to seek loans from savings banks, which are less affected by these regulations.

However, concerns have been raised that high interest rates are exacerbating the financial burden on vulnerable borrowers. Most small credit loan products from savings banks have interest rates capped at 19.9%, close to the legal maximum of 20%. This is more than three times higher than the average interest rate of 6.04% for small loans from deposit banks as of May.

An industry insider stated, "Small credit loans have high interest rates and low limits, making them a last resort for borrowers who are in urgent need of funds. Many turn to savings bank small loans when they cannot secure loans from other financial institutions."