Amid the government's tighter stance on managing household loans, loans secured by car collateral have surged this year. From January to July, the amount of auto collateral loans handled by savings banks and capital companies neared 5 trillion won, exceeding 70% of last year's annual volume. Auto collateral loans are a typical recession-type product mainly used by borrowers facing cash-flow difficulties, and concerns are rising that the high interest rates could lead to arrears and other deterioration in asset quality.
On Sept. 6, according to data received by the office of People Power Party lawmaker Kim Jae-seop from the Financial Supervisory Service, the number of auto collateral loans handled by savings banks and capital companies from January to July was 316,722, with a total of 4.687 trillion won issued. Both the number of loans and the amount far exceeded half of last year's annual figures (454,481 loans, 6.5509 trillion won), and were larger than the combined total amounts in 2020 (1.5607 trillion won) and 2021 (1.8322 trillion won).
An auto collateral loan uses the borrower's own vehicle as collateral and involves relatively simple procedures such as document submission. Borrowers with low credit scores or those undergoing individual rehabilitation, bankruptcy, or credit recovery can use it, and the loan limit is relatively high. It is available for used cars and installment-purchased cars, and can be taken out even if there is an existing loan. Because of these characteristics, it is considered a loan whose demand increases during economic downturns.
Interest rates are on the high side. Currently, KB Capital and OK Savings Bank are offering auto collateral loans at rates of 6%–19%. Recently, the Financial Supervisory Service (FSS) recommended that specialized credit finance companies and savings banks apply a "within annual income" limit to loans that exceed the price of the vehicle in order to curb the growth of auto collateral loans.
Through the June 27 rules this year, the government tightened household loans across the board by limiting not only mortgage loans but also the loan limit for unsecured credit to within annual income. Afterward, with the Aug. 13 comprehensive real estate finance measures, it raised the target growth rate for the total volume of household loans from 1.5% to 3%, but it will be difficult to significantly lower the threshold for general household loans excluding group loans (relocation funds, interim payments, and final payments) and youth and low-income policy loans. As a result, demand for high-interest, recession-type loans is expected to continue to grow.
Kim Jae-seop said, "The government's uniform total volume regulation on household loans is driving ordinary people to high-interest loans outside the formal sector. Rather than tightening credit excessively, practical measures should come first."