Sunshine loan ceilings raised to W15 million

The Financial Services Commission (FSC) raised the size of loans available to low-income borrowers and people with low credit scores.

According to the FSC on Wednesday, banks will be able to lend to those categories of borrowers so-called sunshine loans of up to 15 million won ($12,757). When the FSC introduced sunshine loans in 2010, the limit was 10 million won.

Sunshine loans were started to help potential borrowers who earn less than 30 million won a year, and people with low credit scores. They have relatively low interest rates compared to other loans offered by non-financial institutions.

The financial regulator said it decided to raise the ceiling because 10 million won was too restrictive. It said interest rates could be reduced as well.

“The number of scams, including voice phishing, targeting low income people continue to rise and we decided to raise the limit for people vulnerable to loan sharks,” said Ha Ju-sik, a director at the FSC. “We will also have savings banks give interest rate cuts to borrowers who pay back their interest as required.”

Savings banks, which in Korea are more like consumer finance companies catering to low-income, bad-credit borrowers, will lower interest rates up to 1.8 percentage points for borrowers who pay interest on time, the FSC said.

The financial regulator also said the savings banks will minimize the document reviewing processes for sunshine loans, and that it will monitor closely scams targeting low-income households.

Loan scams reported to the government totalled 8.5 billion won a month on average during the first half of this year.

That figure soared to 12.4 billion won from July to October. The FSC added that 38 percent of the victims were people with low incomes.

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