In response to the rejection of low-credit survey lenders by the Korea Institute of Finance, up to 790 billion won was used as illegal private finance, one in 10 low-credit young people “knock”
It was analyzed that up to 61,000 people were driven to the illegal private financial market last year due to weak sales of lenders. As employment became more difficult, the use of illegal private finance by young people was also increasing. Some advise that measures are needed, such as introducing a flexible maximum interest rate system and tightening the financial safety net for the common people.
On the 15th, the Korea Institute of Finance for the working class announced the results of a survey of 1,538 low-credit people (grades 6 to 10). The survey was conducted online from February 10 to March 13 this year.
According to the analysis, about 29 million to 61,000 low-credit people moved to the illegal private financial market last year because they could not borrow money from lenders. This is a decrease compared to the number of people moving from 53,000 to 94,000 last year. Their illegal private financial use is estimated to amount to about 380 to 790 billion won last year. This is because loan companies’ operations shrank as interest margins decreased due to a sharp increase in procurement rates as high interest rates were maintained until last year. According to the Korea Institute for the People’s Finance, the loan approval rate for last year’s loan business was 9.6% in the bottom 50% of individual credit ratings, up slightly from the previous year. This is because companies have gradually expanded new credit loans that have been reduced since COVID-19.
They knew and used illegal private finance, and there were many low-credit people using various companies. Last year, 71.6% of illegal private financial users said they borrowed money even after recognizing that they were illegal private financial companies. The number of illegal private financial companies in use was the highest at 42%, followed by two (28.4%) and three (5.7%). The percentage of respondents who said that the number of illegal private financial companies in use was more than six was 13.6%, up 4.9 percentage points from the previous year.
In many cases, very high private financial interest was borne, and the use of young people was also on the rise. 60% of illegal private financial users were paying interest above the principal. Seventeen percent of the respondents said they are paying more than 1,200% of interest rates per year, up 6.4 percentage points from the previous year. In particular, for young people in their 20s and 30s, the response rate to the experience of using illegal private finance has expanded to double digits from 7.5% in 2022 to 10% last year.
An official at the Korea Institute for the People’s Finance said, “This is due to the rapid increase in the rate of exposure to illegal private finance due to employment insecurity and low creditworthiness.”
More respondents said they would use the relief system than policy low-income finance. In the future, 30.7% of the lenders said they would choose “personal workout of credit recovery committee, individual rehabilitation and bankruptcy application of corporations” for plans if loans were not approved by lenders. It was much larger than the 20.5% who said they would use government policy financing (sunshine loans, etc.).
The institute suggested that the introduction of a flexible maximum interest rate system, improvement of the name of the loan business, and re-establishment of the role of the financial safety net for the common people are necessary to prevent damage to illegal private finance. In the case of small loans in the United States, the researcher explained that large banks handle high-interest short-term loan products, such as limiting annual interest to 24-48%.
