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As market interest rates continue to rise, loan rates are also increasing

Borrowers with credit ratings 1–3 face annual loan rates around 5%

As market interest rates continue to rise, loan rates are also repeatedly increasing. At most banks, borrowers must bear at least annual rates in the 5% range to obtain unsecured loans. The interest burden for easily borrowing money through overdraft accounts is also said to be growing. However, depending on conditions, some products still allow loans at annual rates in the 3% range, so carefully reviewing options may help reduce funding costs even slightly.

Growing interest burden

According to the financial sector on the 22nd, the unsecured loan rates (based on website disclosures) at the country's five major banks—Kookmin, Shinhan, Hana, Woori, and NongHyup—averaged annual rates of 3.79~5.31% as of the 21st, rising 0.16~0.25% percentage points so far this month. To use an overdraft account, which is typically priced about 0.5% percentage points higher than unsecured loans, borrowers must pay annual interest of 4% or more.

The rates disclosed by these banks were calculated based on credit ratings 1–3, which suggests that many borrowers face loan rates exceeding an annual 5%. In September, the five major banks' interest rates on new unsecured loans for people with credit scores of 800 or below ranged from 5.74~9.63% annually. Considering that market interest rates have risen since then, those who took out loans more recently likely faced even higher rates.

Banks have been raising loan rates to reflect the rise in market interest rates. The one-year bank bond rate, which serves as an index for calculating unsecured loan rates, was 2.8**% annual on the 21st, up 0.3*% percentage points over the past three months. Expectations that the Bank of Korea will find it difficult to cut the base rate in the near term due to strict real estate regulations and sharp currency swings, combined with projections of increased bond issuance from expanded government fiscal spending, are pushing rates up. The U.S. Federal Reserve's cautious stance on further rate cuts is also cited as a factor driving rate increases.

With unsecured loans growing rapidly recently, interest amounts are also expected to expand. The outstanding balance of unsecured loans at the five major banks was 106,117.3 billion won as of the 20th, increasing by 1,384.3 billion won so far this month.

Are there remaining loans in the 3% range?

Despite rising rates, some unsecured loans at banks still have annual minimum rates in the 3% range. KakaoBank's mid-credit loan offers up to 100 million won to salaried workers at annual rates of 3.50~9.49%. Loans are available if the borrower has a KCB credit score of 870 or below, at least one year of employment, and an annual income of 35 million won or more. Rates are determined by the bank's internal credit evaluation model, which considers creditworthiness, debt levels, and repayment capacity.

Kookmin Bank and Shinhan Bank also offer opportunities for salaried workers to obtain unsecured loans at annual rates in the 3% range. Kookmin Bank's 'KB Star Credit Loan II' provides up to 350 million won at a minimum annual rate of 3.91%. Shinhan Bank's 'Solpyeonhan Workplace Loan S II' has a minimum annual rate of 3.58% and a limit of 300 million won. Shinhan requires applicants to have been employed at selected companies for at least one year with an annual income of 25 million won or more, among other conditions. Woori Bank's employee-only product for partner companies and public institutions, 'Excellent Partner Company Employee Credit Loan,' stands out; eligible applicants can obtain up to 300 million won at a minimum annual rate of 3.77%.

A product worth noting for newly hired employees is NongHyup Bank's 'NH First Start Loan.' If the employment period is between one month (two months for remote enrollment) and less than one year, borrowers can get up to 20 million won at a minimum annual rate of 3.63%.

Public servants have a wider range of choices, as several products offer rate discounts. NongHyup Bank's 'NH Public Servant Loan' allows borrowing up to 300 million won at a minimum annual rate of 3.63%. The rate for the 'NH Korea Hero Loan' for firefighters and police officers is even lower, with a minimum annual rate of 3.53%. Kookmin Bank (3.57% annual) and Woori Bank (3.77% annual) also offer unsecured loans with minimum annual rates in the 3% range for public servants.

Primary bank advantage for meeting preferential conditions

However, to receive the minimum rate, borrowers not only need high credit scores but must also meet various preferential conditions set by the bank. Banks reduce rates by about 1 percentage point if customers meet conditions such as credit card usage, salary transfers, automatic payments, and app usage.

A representative from a commercial bank said, "In practice, you need to use multiple financial services at the same bank besides the loan to get the minimum rate," and advised, "If there's no significant difference, it's advantageous to choose the bank you use most often as your primary bank."

Consideration should also be given to the expectation that market interest rates will continue to rise. Banks generally set deposit and loan rates based on market rate changes from about one month earlier, so many expect loan rates to be higher next month. If you plan to raise funds within this year, it may be advantageous to borrow earlier. The timing of rate resets is also important. Currently, loans with rate reset periods of six months often have lower rates than those with one-year reset periods. If you need short-term funds immediately, loan products that base rates on six-month maturity financial bonds or COFIX (Cost of Funds Index calculated on newly originated loans) may be advantageous.

Do not forget that the government's June 27 real estate measures limit the total amount of unsecured loans available across the financial sector to within annual income. Card loans are also included when calculating the limit. However, for those with annual incomes of 35 million won or less, funds borrowed through financial products for low-income households and emergency living funds for marriage, funeral, childbirth, or surgery are excluded from the loan limit calculation.

Reporter Kim Jin-seong