▲ ⓒKim Jae-seop, People Power Party lawmaker’s office
As financial authorities have begun to take aim at blind spots in household loan management, they are considering a plan to reduce the special credit card rate that reflects annual income when purchasing a new car.
This is because car credit card installments are not reflected in the total debt service ratio (DSR) and are therefore considered a ‘blind spot’ of household debt.
Recently, the ‘balloon effect’, in which credit loans, card loans, cash advances, and insurance policy loans from second-tier financial institutions, which are classified as ’emergency aid to the common people’, is increasing rapidly, is becoming more and more widespread.
According to the Financial Supervisory Service on the 10th, it is considering reducing the special credit card limit by considering annual income when purchasing a new car.
A credit card special limit is when a card company temporarily raises the limit in case a customer inevitably has to increase one-time expenses, such as hospital expenses or family events.
Most credit card companies temporarily grant special limits of up to 100 million won for the longest installment of 60 months through income screening related to car card installments.
Currently, some credit card companies are granting a special limit of up to 3 times annual income (36 times monthly disposable income) when purchasing a new car, but the Financial Supervisory Service considers this business practice to be inappropriate.
It is expected that the actual special rate will be adjusted from early next year by reflecting the Credit Finance Association’s best standards and the internal regulations of each credit card company.
When purchasing a new car, if you use an installment finance company’s car installment plan or a bank’s auto loan product, it is included in the DSR calculation, but if you use a car card installment product, it is not included in the DSR, so in some cases, household debt amounting to tens of millions of won per person is in the blind spot of management. This is because there are criticisms that it is being left behind.
According to statistical data (domestic card approval performance) from the Korea Automobile Mobility Industry Association and the Credit Finance Association, of the total 78.5 trillion won in domestic automobile sales last year, the amount paid by credit card totaled 41.2 trillion won, or 52.5% of the total. In the case of domestically produced new cars, the card payment amount reached 40.3 trillion won.
However, exceptions may apply in cases where low-income customers need to purchase a new car through a special limit. The Financial Supervisory Service’s position is that it is inappropriate to apply car card installments to DSR regulations.
In addition, the financial authorities plan to control the pace by requesting second-tier financial institutions to submit lending targets for November and December.
Last October, card loans, cash advances, and credit loans from card and capital companies increased by more than 900 billion won. Household loans from credit card and capital companies increased by 800 billion won in July and 700 billion won in August, and the increase further expanded last month.
Household loans, including credit loans from savings banks, increased by 400 billion won last month, turning to an upward trend again. Insurance policy loans were estimated to have increased by about 300 billion won last month.
This is the first time in 3 years and 3 months that other loans, including credit loans, card loans, and term loans from second-tier financial institutions, have increased by more than 1.5 trillion won since 3.3 trillion won in July 2021, when Kakao Bank and other public offering shares were subscribed.
An official from the financial authorities said, “The scale of credit loans provided by second-tier financial institutions has increased explosively and appears to have far exceeded the appropriate amount. To control the speed, we plan to receive loan targets in November and December, mainly from card and capital companies.” said.
This is partly due to banks reducing the size of household loans and the aggressive operation of card and capital companies, which are finding it difficult to make a profit, but it is also believed to be due to an increase in demand from the working class and vulnerable groups, who are experiencing difficulties due to the worsening economy.
The financial authorities’ position is that they will not excessively tighten emergency loans for the working class and vulnerable groups.
A high-ranking financial authority official said, “Even if real estate loans are slightly reduced, I think it is advisable to provide loans such as emergency funds to the underprivileged class within income standards.”
