Due to the prolonged recession, the amount and number of “illegal private financial prevention loans..

Due to the prolonged recession, the amount and number of “illegal private financial prevention loans” that lend up to 1 million won to low-credit and low-income families on the same day are rapidly increasing.

According to data submitted by Rep. Choo Kyung-ho of the People’s Power, a member of the National Policy Committee of the National Assembly on the 22nd, the amount of illegal private financial prevention loans in the first half of this year was 60.2 billion won. This means that the supply of preventive loans was 95.8 billion won and 98.3 billion won, respectively, in 2023 and 2024. This means a 22% increase compared to last year.

Illegal private financial prevention loans are a system that immediately lends up to 1 million won on the same day to low-credit and low-income groups with an annual income of 35 million won or less. The interest rate is 15.9% per annum. Financial authorities introduced it in 2023 to prevent vulnerable groups who are struggling to make ends meet because they cannot find urgent money from going to illegal private finance. In March this year, the name was changed from ‘small living expenses loan’.

As the supply of loans expands, delinquent balances and delinquency rates are also soaring. This is because the number of ordinary people who cannot pay back 1 million won has increased as their income has decreased due to the worsening economy. As of the first half of this year, the delinquency balance of illegal private financial prevention loans was 76.4 billion won and the delinquency rate was 35.4%. It rose compared to 55.5 billion won and 32.2% last year. The delinquency rate rose from 11.7% in 2023 at the beginning of its introduction to the 20% range in May 2024, before entering the 30% range at the end of last year.

An official from the Korea Inclusive Finance Agency said, “The delinquency rate continues to rise due to the nature of the loan system that focuses on vulnerable borrowers,” adding, “We are implementing various measures to increase sustainability without reducing the number of applicants.”

Among customers who use illegal private financial prevention loans, there is an increasing demand to borrow again due to the need for rapid supply. By the first half of this year, the amount of re-loans was 100 and the number of cases was 14,411. Re-loan is a system that can be re-loan at the final interest rate applied to the previous loan if the principal and interest of illegal private financial prevention loans are completed.

Financial authorities said earlier this month that they would supply 200 billion won in illegal private financial prevention loans, which doubled from 100 billion won last year, to strengthen support for the vulnerable. The initial loan limit for non-debt borrowers in the existing financial sector was raised from 500,000 won to 1 million won.