Consumers feel left out of low-interest loan plan

While the government-promoted mortgage program has become a big hit, complaints are rising among people with less financial capability and lower credit levels.

Those who have taken out a higher-interest loan from a non-banking financial institution because a lower credit rating has rendered them ineligible for a loan from a commercial bank are disgruntled over the new government program.

Park, a 55-year-old small grocery store owner in Seodaemun District in northern Seoul, is among those who feels marginalized since he learned he does not qualify for the government program called, “Anshim Jeonhwan Daechul,” which means converting to a safer mortgage loan.

He currently has an adjustable mortgage loan worth 120 million won ($109,000) from the MG Community Credit Cooperative, which requires him to pay an interest rate of 3.3 percent, coming out to about 300,000 won per month.

After hearing about the new loan, Park called his bank to ask about switching to the program, which offers an interest rate of between 2.55 and 2.6 percent, but he was rejected.

“I heard that MG Community Credit Cooperative is excluded from the government program,” he said. “I don’t think I have credit problems as I have been paying the interest with diligence. I feel bad.”

More than 1 million people have taken out a mortgage loan from a non-banking institution where they pay a higher interest rate than they would at a commercial bank.

MG Community Credit Cooperative, savings banks, the National Credit Union Federation of Korea, and private insurance companies are also classified as non-banking financial institutions and are easier to borrow from. Usually, loan interest rates at these institutions are 3 percentage points higher than at commercial banks.

The total outstanding mortgage loans at non-banking institutions stood at 125 trillion won as of last month, according to data from the Bank of Korea.

Despite high demand for the new program at riskier credit companies, the Financial Services Commission (FSC) on Wednesday said it won’t expand the program.

The top financial regulator designed the program with the main goal of reducing the burden of consumers who are struggling to pay the loan back out of their monthly wages, which are hardly rising due to growing concerns about deflation.

For the first two days since the program’s debut on Tuesday, about 8 trillion won worth mortgage loans were approved by 16 commercial banks for the switch to a fixed rate of between 2.55 and 2.6 percent.

On Thursday, another 4 trillion won was approved, according to the FSC.

The financial regulator has imposed a monthly ceiling of 5 trillion won per bank and 20 trillion won a year, and critics say it did not expect such explosive demand.

“Eligibility for the Anshim Jeonhwan Daechul should be expanded to insurance companies, savings banks and mutual financial companies,” said a spokesman at the Korea Finance Consumer Federation.

Instead, the financial regulator is promoting existing programs that could be useful for those consumers, such as the Haetsal Loan and Bakkuadeurim Loan, which also convert higher rates to lower fixed rates.

The programs allow people who are on expensive loans from capital firms, including those earning between 40 million won and 45 million won a year, or people with a credit level of 6 to 10, to reduce their interest rates.

The FSC also recommends that people unable to switch to the new loan consider a debt adjustment loan provided by the Korea Housing Corporation, which offers 3 to 3.9 percent interest, still higher than the latest program.

“The existing loan switching programs are burdensome for the working class, and they have very particular standards,” an FSC official said.

FSC Chairman Yim Jong-yong said Thursday that there needs to be a debt restructuring system tailored to each income bracket.

“There needs to be a permanent support program that can adjust debt payments in accordance with individuals’ circumstances considering income, asset, age and family size,” Yim said at a ceremony for the second anniversary of the People’s Happy Fund held at the Seoul Office of Korea Asset Management Corporation in southern Seoul. “An organization that will oversee financial policies for the working class will be launched soon to take that role.”

BY SONG SU-HYUN [song.suhyun@joongang.co.kr]