South Korea’s credit system consists of the Central Bank, commercial banks, and non-banking organizations. The central bank issues the national currency, provides government loans, and regulates the private banks’ activities. Personal loans for individuals are provided by private commercial banks.
Consumer loans in South Korea are very popular. When planning to make a significant purchase, many South Korean residents seek help from banks or lending companies. It is a common practice for those who don’t have enough savings to buy a car or a home without any additional financing. Huge loans in South Korea typically have collateral backing. Thus, banks can easily recover their losses by repossessing movable or immovable property from defaulters through the courts. Credit cards, as well as overdrafts and personal loans, are usually unsecured. However, sometimes Korean lenders seek help from collectors in case of missing payments.
The amount of consumer loans issued by banks in South Korea has reached a record high of $710 billion and continues to grow. It happens because of the students as well. The number of graduates who can’t pay off their debts has increased by more than 30 times over the past few years due to the high tuition fees. As students don’t have enough money to pay for education, they rush to banks for loans. Education loans, as well as small business loans and loans for luxury goods, are one of the most popular lending options in South Korea.
Like in America, South Korea has a credit scoring system too. However, it differs from the FICO score rating. They range credit scores from 1 to10, with a 1,000-point system. Thus, if you have a 1 credit score, that means 1,000 points, and your credit is considered excellent. However, having a good credit score in South Korea is not so important until you can afford a loan and can verify your high monthly income.
There are also digital-only banks with a mobile-phone-based real-time loan application process and competitive interest rates. These banks are pretty popular In South Korea. They are a bit similar to the US online lending companies that allow people to obtain loans within a business day just by filling out an online application form.
The average repayment period for a personal loan in South Korea is 3 to 7 years. As South Korea’s household debt grows, some commercial banks, such as KB Kookmin Bank, decided to cap the size of personal loans per household to 20 million won (or about $18,000). Thus, the maximum loan amount an average Korean can obtain is lower compared to US personal loans.
According to the World Bank collection of development indicators, compiled from officially recognized sources, the Bank Lending Rate in South Korea increased to 3.90% in June from 3.68 percent in May of 2022. In the United States, this figure was reported at 3.25%.
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