Keep checking your interest rateJung, a 32-year-old company employee, borrowed 25 million won ($24,151) ahead of his wedding in November. Based on his previous year’s salary of 41 million won, the interest rate for the loan was set at 6.47 percent.
But as soon as Jung got promoted in January, he applied for a lower interest rate, telling his bank it should cut the interest rate since his salary rose to 52 million won. The bank approved and cut the rate to 5.38 percent.
Jung has been able to save about 160,000 won a year in interest.
The right to request an interest rate cut was introduced in August 2002. Anyone who has borrowed money from financial institutions ranging from banks, insurers to card companies can do so. But not many people are aware of it.
People who get promotions, pay raises or new jobs - any major status change - can request that financial institutions lower their interest rates, especially longtime customers who can prove they are financially healthy.
But not many take advantage of the policy.
According to a survey by the Korea Consumer Agency of people who took out loans in March, only 38.5 percent knew about the policy.
The reason is that financial institutions don’t want to lower rates, so they don’t publicize the policy.
The Financial Services Commission (FSC) announced a plan to boost rate cut requests in 2012. It had banks adopt measures to let their customers exercise their right. The financial authority made another announcement in July to expand the system as part of efforts to deregulate the financial industry.
The JoongAng Ilbo, however, found that nine commercial banks put limits on their customers’ rights, such as only allowing two such rate cut requests per loan.
The banking industry has complaints about the policy, saying the government is trying to show it is doing something for consumers by easing regulations, even though it doesn’t know the market situation that well.
The Financial Supervisory Service (FSS) said in May the authority will expand the right to request a rate cut to mortgages. The authority sent letters to banks, but only a few provincial banks followed through.
Woori Bank and Kookmin Bank rejected the FSS policy.
“For mortgages, banks apply different rates based on the value of properties,” said an insider at a commercial bank.
“It is questionable whether banks would follow the FSS guideline because most mortgage products have fixed rates regardless of debtors’ credit levels.”
Meanwhile, customers remain frustrated.
Lee, a 39-year-old employee, has gotten several interest rate cuts on loans over the past 10 years.
“When you go to banks, you have to speak louder than usual to protect your rights,” Lee said. “Those who don’t know their rights are easily fooled.”
“Consumers need to demand their rights,” said Shon Sang-ho, a research fellow at the Korea Institute of Finance. “Banks don’t cater to individual customers as they do to corporate consumers.”
BY SHIM SAE-ROM [email@example.com]