Worker A, who purchased a home, applied for a mortgage at a bank to secure the remaining balance but was unable to borrow the full amount needed. Even with additional funds, A was short by 50 million won and ultimately took out an additional loan from a P2P lender at an interest rate of 10%. A stated, "The interest rate is definitely higher than the bank mortgage, but with the payment deadline approaching, I had no other options."
As borrowers struggle to secure sufficient funds for home purchases from banks, they are increasingly turning to peer-to-peer (P2P) lending to cover the shortfall. With banks tightening mortgage limits and reducing loan approvals, borrowers are resorting to additional borrowing through credit loans, leading to a trend known as 'young-geul' (a Korean term for exhausting all options to secure funds) in the non-bank sector.
According to the P2P Center, the total loan balance from 46 domestic P2P companies reached 2.36 trillion won at the end of last month, an increase of 926 billion won (4.1%) from the previous month. This is the highest level since statistics began being collected in June 2021 and represents a 35.6% increase from January's figure of 1.74 trillion won.
Borrowers looking to purchase homes are finding it increasingly difficult to meet their funding needs solely through bank loans, prompting them to seek additional sources. The amount available through mortgages is limited, and credit loan limits are capped at annual income levels, leading borrowers to explore options like P2P lending when their own funds and bank loans fall short.
In fact, online communities are sharing strategies for covering down payments that could not be secured through banks with P2P loans or loans from private lenders. Borrowers are attempting to maximize their bank loans and then supplementing the remaining amount with additional funds from non-bank sources.
The P2P market has seen a notable increase in personal credit loans. The balance of personal credit loans rose from 174 billion won in January to 687 billion won last month, nearly quadrupling in eight months. The share of personal credit loans within the total P2P loans increased from 10% to 29% during the same period.
Financial experts believe that the demand from borrowers unable to secure necessary funds from banks or credit card companies is shifting to P2P lending. This includes not only those seeking to fill gaps in housing funds but also individuals with mid-to-low credit scores needing additional funds for living expenses and emergencies.
Since the implementation of loan regulations on June 27 last year, banks have limited credit loan amounts to within annual income levels, and the limits on credit card loans have also decreased, narrowing the options for borrowers. As the barriers to loans have increased in the banking sector, P2P lending, which is relatively less regulated, has emerged as an alternative funding source, creating a 'balloon effect.'
Financial analysts predict that as household loan regulations continue, the trend of shifting demand to non-bank sources will persist for the foreseeable future.
The challenge is that as borrowers seek additional funds, their interest burdens also increase. P2P loan interest rates vary based on the product and the borrower's creditworthiness. For instance, taking out an additional loan of 100 million won at a 10% interest rate would result in a monthly interest payment of approximately 830,000 won (based on a lump-sum repayment). This, combined with existing mortgage or credit loan interest, adds significant repayment pressure even after purchasing a home.
Borrowers with multiple loans from various financial institutions may find that while additional borrowing can temporarily alleviate cash shortages, it could weaken their ability to repay principal and interest. Focusing solely on securing home purchase funds may reduce the available cash for living expenses and existing loan repayments.
A financial industry representative stated, "As bank loan regulations tighten, P2P lending, which is subject to relatively less regulation, is emerging as a funding source. The most affected by these regulations are mid-to-low credit borrowers, so careful monitoring and proactive government support are necessary to prevent them from facing a loan cliff."
* This article has been translated by AI.
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