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Half of financially strained older adults turn to high-interest loans, raising concerns over debt inheritance
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By Lee Kyung-min
More than half of financially strained older adults are taking out high-interest borrowing loans, fanning concerns that their debt could be passed on to their families in what could become a social, intergenerational problem, a study showed Tuesday.
The findings come amid rapid population aging with the rising possibility of unsettled debt among older adults undermining not only their retirement security but also translating into unwanted financial stress for younger generations already burdened by higher housing and living costs.
Also lingering are concerns over exposure to illegal debt collection, with reports of older adults being coerced to quickly repay their debts or have their family members threatened.
According to a survey by BNP Paribas Cardif Life Insurance Korea, nearly half, or 45.6 percent, of older adults who have taken out loans said that they resorted to second- or third-tier higher interest-charging financial institutions, including capital firms and private lenders.
These lenders are used by low-credit borrowers with weak credit, low income and unstable employment histories who are mostly denied loan opportunities at first-tier commercial lenders.
The interest rates paid by the respondents who used third-tier financial institutions averaged 23 percent annually.
This exceeds the country’s 20 percent legal ceiling.
Among borrowers earning less than 2 million won ($1,380) per month, the figure spiked to 75 percent.
Nearly 4 in 10 respondents, or 39.5 percent, said they had no emergency savings to cover sudden expenses such as medical bills.
This means unexpected health issues common among older adults can immediately lead to them to taking on high debt or restoring to illegal private lenders.
Some 23.8 percent said they spend more than 30 percent of their income to repay debt and principal.
More than half, or 53.1 percent, said they had no plan to prevent their debts from being inherited by family members when they die.
Under the law, family members inherit both assets and debt unless they decline inheritance within a certain period, an option many are unaware of or fail to choose in time.