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Lenders add two-week cancellation windows

Borrowers can now cancel loans that they have taken out from large loan sharks if they change their minds within 14 days.

Twenty large lenders that are non-financial institutions offering loans at relatively high interest rates compared to those offered by major banks will adopt this rule by the end of this year, the Financial Services Commission (FSC) said Sunday.

Borrowers who take out less than 40 million won ($36,000) as credit loans or 200 million won through a mortgage will be able to change their minds if they can pay back the amount borrowed plus interest, according to the new agreement. The deadline to cancel is 14 days after the borrower signs a contract or receives the loan, whichever comes later.

In the case of mortgage loans, borrowers would not only have to repay the loan but also any transaction fees required to secure credit. Credit borrowers would have to repay only the loan plus interest.

If the consumer cancels the loan, that record will be deleted from loan sharks and Korea Credit Information Services’ data, which means it wouldn’t have an impact on the borrower’s credit scores.

The top 20 loaners, including Rush & Cash, Sanwa Money and Lead Corp, will follow the new guidelines, according to the FSC. Top 20 companies currently account for 74 percent of the total market size and the FSC now plans to have 710 companies follow the new rule.

“The new rule will allow borrowers, who took out loans without having much time or consideration, to prevent their credit scores from going down,” said an official at the FSC.

The financial regulator also said major institutions will adopt the new rule by next month and other loaners that are not major banks will follow suit by December. This rule will apply only to private borrowers; corporate or business owners will not be affected.

Some loan sharks offer plans that exempt borrowers from paying interest the first 30 days of a loan. Many industry insiders say the promotions will disappear due to the new rule.

“There are many who criticize our 30-day interest-free loan program, saying its purpose is to allure more people to borrow,” said an industry insider who works at a private loan company. “We will not be able to offer such promotion after the new rule goes into effect.”

BY HAN AE-RAN [kim.youngnam@joongang.co.kr]