📷 Ads for credit card loans posted on the wall of a building in Seoul. [Photo source = Yonhap News]
Cash Services Expected Surge in Demand, 3rd Stage DSR Credit Loan Regulations Exclusion Liquidity Shortfall Debtors Molina…Concern over balloon effect
Concerns over abuse of long- and short-term credit card loans (card loans and cash services) are growing as financial authorities have decided to shorten the stigma of individual rehabilitation from five years to one year for sincere patients. It is expected that demand for credit card loans, which are relatively easy to approve, will increase when new loans and card use by stigmatized debtors with poor credit and financial conditions are normalized.
According to the financial sector on the 9th, the Financial Services Commission (Financial Commission) has decided to shorten the period of public information sharing for debtors who faithfully repay for one year from the previous five years to one year in accordance with the court’s rehabilitation decision.
Small business owners and others, who have been in the process of personal rehabilitation and bankruptcy, have shared public information related to debt to the financial sector through the Korea Credit Information Service for up to five years. As a result, not only were new loans rejected for a long time, but daily and essential financial life was restricted due to demands for repayment of existing loans and suspension of card use.
In the case of debtors who faithfully paid off their debts for a year through this Financial Services Commission measure, the information will be deleted early, allowing them to issue and use credit cards and make small loans.
Some in the market predict that the demand for card loans will increase as psychological and practical restrictions are reduced due to the improvement of the system. This is because microloans or credit card loans are highly likely to be approved even if their credit ratings recover slightly.
Considering that many of the rehabilitators are small business owners or self-employed, there are growing concerns about the increased use of card loans and the risk of debt resurgence.
Lee Jung-hwan, a professor at Hanyang University’s School of Economics and Finance, said, “I think it will be inevitable for rehabilitators with relatively poor credit and financial conditions to flock to card loans that are easy to access even to low-credit people. However, it remains to be seen whether there will be a surge in demand for ignorance because it is a conditional relief for patients with sincerity and they will be aware that the damage in case of delinquency is not easy.”
Financial authorities have included long-term card loans (card loans) in credit loans in the three-stage stress total debt repayment ratio (DSR) regulation, but it is predicted that measures excluding short-term card loans (cash services) will also have some side effects.
The Financial Services Commission decided not to classify it as a credit loan, considering that cash services are smaller than credit card loans and most of them have to be paid back right next month.
Related industries agree that they should be alert to the increasing demand for ignorance of cash services due to the balloon effect.
Card loans usually affect credit scores for 3 to 12 months once used and repaid. In particular, individual credit rating companies such as Nice Ratings Information and KCB (Korea Credit Bureau) judge that cash services are more likely to be overdue in the short term due to higher interest rates when evaluating credit scores.
An official from the credit card industry said, “It is too early to predict that rehabilitators will flock to card loans, but it is true that card loans are the next best option when it is difficult to get credit loans or lack cash liquidity, and their accessibility is higher than that of other loans.”
Source: mk.co.k
