FSC pushes cheaper loans for risky borrowers

The Financial Services Commission (FSC) announced the launch of mid-rate (6 to 10 percent) loans for people who have been shunned by commercial banks due to their low personal credit history starting July 5.

Yim Jong-yong, chairman of the FSC, held a meeting with representatives of Seoul Guarantee Insurance (SGI) and nine commercial banks, including Shinhan, Woori and KB Kookmin, on Thursday, and announced that they agreed to launch the new loan program to help people with low credit ratings get loans with lower interest rates than offered by loan sharks.

“The interest rate gap between bad credit history customers and good credit history customers is too wide in this country,” said Yim on Thursday. “People with low credit ratings pay some 20 percent interest on their loans, while those with a good credit rating pay less than 5 percent. There needs to be more mid-rate loan programs to help low- and mid income earners.”

The SGI will be an insurer for financial institutions offering the loans. The SGI will directly contact borrowers who fail to pay back loans and claim indemnity.

There are some requirements for people with low credit scores to get the loans. People earning at least 20 million won ($17,376) a year and working for more than a half year and people receiving more than 12 million won a year in pension benefits are eligible for the new program.

Customers will be able to borrow up to 20 million won, depending on their credit scores. They will have up to 60 months to pay back the loans. They are able to apply for loans at 6,018 branches around the nation operated by nine participating banks. Shinhan and Woori will also allow borrowers to take out loans through their mobile apps.

BY KIM YOUNG-NAM [kim.youngnam@joongang.co.kr]