The card loan interest rate, which serves as a lifesaver for ordinary people, has surged to its highest level since the 2022 'Legoland incident,' and the revolving interest rate is also continuing to soar. The revolving interest rate, which was in the high 15% range in 2022, has risen to 17% this year and shows no signs of coming down anytime soon. The interest rate applied to low-credit borrowers has long approached 19%.
Revolving refers to a rollover system in which credit card users carry over a portion of their card payment due to the next payment date. Credit card companies charge fees in exchange for allowing deferred payment. Considering that many revolving users are low-credit borrowers who cannot repay their card dues, it is safe to say that a significant number of customers are bearing the 19% interest rate.
According to the Korea Credit Finance Association on the 28th, the average revolving interest rate for eight major credit card companies (Shinhan, Samsung, KB Kookmin, Hyundai, Lotte, Hana, Woori, and BC Card) was 17.17% last month, up 0.24 percentage points from the same period last year (16.93%). Compared to August 2022, when the Korea Credit Finance Association began to publicly announce monthly revolving interest rates (15.97%), it has risen by 1.2 percentage points.
The interest rate applied to low-credit borrowers is poised to exceed 19%. The average revolving interest rate applied to customers with a credit score below 700 points last month was 18.89%. Since related announcements began in July 2023 (18.41%), it has continuously maintained around 18%, showing a slight increase.
The methodology for calculating the revolving interest rate is not specifically disclosed. The lending rates of commercial banks are determined by adding or subtracting from the benchmark interest rate called COFIX, while no benchmark interest rate is provided for revolving rates. The revolving instructions from credit card companies only mention that rates are applied differently between 5% and 20% based on individual credit scores.
As a result, revolving interest rates vary widely among credit card companies. Last month, the credit card company with the highest revolving interest rate was Lotte Card at 18.45%, which is 2.73 percentage points higher compared to the lowest Samsung Card (15.72%). BC Card had an interest rate of 16.38%, while the others were around 17%. Similarly, for banks, the difference between the minimum (15.95%) and maximum (18.97%) rates is significant.
Although credit card companies have reduced their funding costs, they are not lowering their revolving interest rates. When the Bank of Korea lowered the base rate to 3.25% last October, the yields on asset-backed securities dropped to the high 4% range in 2023, down from 3% last year, and down to 2% this year. In contrast, the revolving interest rate slightly increased from 17.06% last October, showing a reverse trend.
The reason credit card companies are not lowering revolving interest rates is analyzed to be due to declining profitability. After the introduction of the Eligible Cost Assessment System in 2012, as merchant fees, which had been a major source of revenue for credit card companies, fell, dependency on interest revenue from side businesses like loans increased. Last year's net profit for credit card companies was 2.591 trillion won, which represented only a 0.3% increase from the previous year.