As high interest rates and household loan regulations converge, it is becoming increasingly difficult for low-income individuals to secure loans from lending firms, which have traditionally served as a last resort. While the average credit score of borrowers receiving loans from these firms has increased, the average loan amount has dropped by more than 40% since the beginning of the year. There are growing concerns that low-credit and low-income borrowers may be excluded from loan opportunities as demand shifts from banks and secondary financial institutions to lending firms.
According to the loan brokerage platform Finda, the average loan amount per borrower from lending firms in October was 3.05 million won, a decrease of 2.24 million won (42.3%) compared to January's average of 5.29 million won.
In contrast, the average credit score for borrowers during the same period rose from 566 to 607. The average loan interest rate increased slightly from 19.94% to 19.99%, nearing the legal maximum of 20%. Despite higher credit scores among borrowers, the amount of loans has decreased, and interest rates have risen, indicating that lending firms are raising their lending thresholds even for low-income individuals.
Industry analysts attribute this trend to the increased lending barriers at banks and secondary financial institutions, which have pushed relatively higher-credit borrowers toward lending firms. Additionally, rising market interest rates have increased funding costs for lending firms, leading them to focus on lending to higher-credit borrowers to mitigate risks.
Looking ahead, the lending barriers at banks are expected to remain high for the remainder of the year. According to the Bank of Korea's 'Financial Institution Lending Behavior Survey,' the loan demand index for domestic banks in the fourth quarter is projected to be +6, indicating an increase in loan demand compared to the previous quarter. However, the loan attitude index for the same period is recorded at -11, suggesting that banks will continue to tighten lending practices, particularly for general loans such as credit loans, which stand at -8.
A significant concern is the limited capacity of lending firms to supply funds. These firms are required to maintain total assets within ten times their equity, preventing them from expanding loans indefinitely. Although financial authorities have allowed reputable lending firms to borrow from banks since 2021 to increase loan supply for low-credit borrowers, as of the end of last year, bank loans accounted for only 8-9% of the total borrowing balance of these firms.
In a situation where lending capacity is constrained, if funds are concentrated among relatively higher-credit borrowers, low-credit and low-income individuals may find themselves excluded even from lending firms. There are fears that vulnerable borrowers who cannot meet the thresholds of formal financial institutions may be pushed toward illegal money lending.
Warnings have already been issued regarding the repayment capabilities of vulnerable borrowers. According to the Bank of Korea's financial stability assessment in September, the delinquency rate for vulnerable borrowers at the end of the second quarter was 10.39%, more than ten times the overall household delinquency rate of 0.98%.
A financial industry official stated, "As loan regulations and funding cost burdens accumulate, lending firms have no choice but to focus on higher-credit borrowers. It is essential to strengthen policy support for low-credit borrowers to prevent them from being driven toward illegal money lending, even from lending firms."
* This article has been translated by AI.
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