Low- and mid-credit borrowers can get loans at annual rate of 5%...

South Korea's financial authorities are introducing a new loan product designed to support individuals with low to mid-credit scores, offering interest rates as low as 5% annually. The "mid-rate interest life stability loan" will be available through six major savings banks, including KB, OK, SBI, Shinhan, YeGaram, and Korea Investment Savings Bank, with a maximum loan limit of 10 million won.

This initiative comes in response to growing concerns that tightening household debt regulations by the government are making it difficult for low-income individuals and small business owners to access essential funds, leading to increased reliance on high-interest loans. The new loan product aims to provide a more accessible and affordable credit option.

The loan's interest rates will range from 5.9% to 15.27% at the initial six participating savings banks. This represents a reduction of approximately 1.24 percentage points compared to existing mid-rate loans, which have a maximum rate of 16.51%. Borrowers must declare the purpose of their loan and agree not to purchase property in designated speculative or overheated areas for one year, or risk being barred from housing-related loans for three years.

In addition to savings banks, 14 other savings banks, along with commercial banks, credit card companies, and capital firms, are expected to offer similar loan products in the latter half of the year. Credit card companies are also participating in the support measures. For instance, Hana Card will lower the maximum interest rate on card loans and credit loans to 12% for small business owners and self-employed individuals with an annual revenue below 300 million won until the end of the year. Shinhan Card and BC Card are also considering similar rate reductions, while KB Kookmin Card has already lowered its maximum interest rate from 19.9% to 18.9% in February.

Financial authorities hope these measures will help prevent vulnerable individuals from falling into predatory lending schemes and alleviate their interest payment burdens. However, some analysts caution that shifting loan demand to policy-backed financing could create a mismatch with the overall household debt management strategy and potentially inflate the "balloon effect," where restrictions in one area lead to increased activity in another.