The interest rates for cash services and card loans from credit card companies, referred to as "recession-type loans," are rising this year. Although the trend of lowering the benchmark interest rate remains unchanged, credit card companies' interest rates are reversing this trend. There are forecasts that the burden on vulnerable financial consumers will increase further.
According to a disclosure by the Credit Finance Association on the 24th, the average interest rate for cash services among the eight major credit card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Woori, Hana, BC Card) as of the 20th was 18.14%, up 0.67 percentage points from the end of the previous year's first half (17.47%). Cash services are short-term card loans that allow customers to borrow cash within a limit designated by the credit card company, based on their credit card limit. The maximum limit for cash services is typically 40% of the total credit card limit.
By card company, Woori Card had an average interest rate of 19.16%, nearing the legal maximum interest rate (20%). This was followed by Lotte Card and KB Kookmin Card at 18.71% and 18.49%, respectively. Other rates included ▲Shinhan Card 17.84% ▲Hana Card 17.90% ▲Samsung Card 17.88% ▲BC Card 17.7% ▲Hyundai Card 17.4%.
The interest rates for card loans have also risen compared to six months ago. The average interest rate for card loans among the eight major credit card companies is 14.6%, up 0.4 percentage points from the end of the previous year's first half (14.2%). Card loans, as long-term card loans, are products that allow card members to borrow based on their credit score and card performance from either the credit card companies or banks affiliated with them.
By card company, Lotte Card recorded the highest rate at 15.42%, an increase of nearly 2 percentage points from the end of June last year (13.44%). Woori Card's average card loan interest rate was high at 15.32%. Other rates included ▲Shinhan Card 14.66% ▲Hana Card 14.60% ▲KB Kookmin Card 14.48% ▲Samsung Card 14.08% ▲BC Card 14.07% ▲Hyundai Card 14.04%.
Cash services and card loans are often considered the last resort in the financial sector when funds cannot be borrowed from banks or second-tier financial institutions. Customers with relatively low credit scores of below 700 points must bear even higher interest. Despite the rising interest rates, the reason money is flowing into these loans is due to regulations by financial authorities. The financial authorities have raised the lending threshold for banks to manage the increase in household loans.
In fact, the scale of cash service usage has reached the highest level ever. As of the end of last month, the annual cumulative amount of cash services was about 52.11 trillion won. This represents an increase of about 9 trillion won compared to the end of October, two months ago. The same applies to card loans. As of the end of last year, the total amount of card loans used by the eight card companies was 42.78 trillion won, an increase of 3.4 trillion won from the previous month. This is about a 3 trillion won increase compared to the end of the previous year.
The issue is that, despite the ongoing trend of lowering interest rates, the interest rates for cash services and card loans are rising. The Bank of Korea froze the benchmark interest rate at 3% on the 16th, but the bank's governor, Lee Chang-yong, made it clear that the trend of lowering the benchmark interest rate continues. As a result, the bond market has reacted in advance, reducing the costs that credit card companies need to spend on funding, but the interest rates for card loans and cash services are not reflecting this impact.
A representative from the card industry noted, "Due to the reduction in commission fees, the performance of cash services and card loans has become relatively important, leading to an increase in the volume handled by each company." However, they added, "Given the current economic situation, risk management indicators are being scrutinized more seriously than ever.”