Interest rate maximum lowered to 20 percent from 24 percent

Consumers meet with officers at a bank in central Seoul. [YONHAP]

Korea will cut its maximum legal interest rate from 24 percent to 20 percent from July to provide relief to low-income households, the Financial Services Commission (FSC) said Tuesday.

The move comes as the country's cabinet approved a revised enforcement decree on the Act on Registration on Credit Business, etc. and Protection of Finance Users and the Interest Limitation Act on Tuesday.

The amended decree will be promulgated on April 6. There will be a three-month grace period before it goes into effect on July 7.

The adjusted legal interest ceiling will be applied to fresh loans and renewed or extended contracts as of July 7. It will not be retroactive.

The FSC advised consumers to use short-term loans before July, if it is inevitable for them to take out high-interest loans, as the rates will be lowered soon.

If consumers are already on long-term loan contracts with interest rates higher than 20 percent, the FSC said it could be more advantageous for them to transfer to loan programs offered at lower interest rates by taking out a new loan after July 7.

The FSC said that it will soon announce follow-up measures to help people struggling to borrow money due to their low credit scores, and thus were forced to take out loans from loan sharks.

The financial regulator said it plans to temporarily provide public loan programs for those already with loans at over 20 percent interest rate to lower their interest costs.

It will also encourage financial companies including internet-only banks to offer mid-range interest rate loan programs targeting people with low credit scores. Mid-range interest rate loans refer to loans offered at lower rates than those offered by loan sharks but slightly higher than commercial banks.

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]