Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
Borrowers with low credit scores turn to loan sharks for money
A flyer advertising private loans is placed on the floor of a market in Seoul. Newsis
By Anna J. Park
By Anna J. Park
As many as 71,000 people with low credit scores were found to have turned to loan sharks to borrow money last year as interest rates surged, according to a recent survey by Korea Research Institute for Financial Inclusion, whose results were announced, Monday.
The research institute surveyed 5,478 people with low credit scores and 23 loan companies from mid-December of 2022 until the end of January this year.
That marks a 26 percent increase compared to a year ago. In 2021, about 37,000 to 56,000 people bad credit were estimated have turned to loan sharks to borrow money.
It is also estimated that loan recipients with low credit scores borrowed around 1.23 trillion won ($910 million) in 2022, which is up around 26.8 percent compared to 2021.
As authorized financial institutions have seen a decrease in new loan demand amid a steady increase in interest rates, the number of people turning to loan sharks has surged, according to the survey. After the legally-authorized loan interest rate was capped at 20 percent from 24 percent in July 2021, many people with low credit scores were found to have turned to loan sharks to borrow money.
Also, 41.3 percent of the survey respondents said the aggregate amount of interest paid throughout 12 months was larger than the principal of their borrowings. Over 77 percent of respondents who had turned to loan sharks before said they still decided to borrow from them even though they were aware of the legal risks.
“In addition to the interest rate hikes last year, legitimate lenders have been raising the bar for their loan products, resulting in low-income borrowers with bad credit be excluded from legal loan markets,” the research institute said.