Consumers open more overdraft accounts to bypass loan curbs

A signboard lists personal and small business loans, along with other banking services, at a bank in Seoul on Thursday, a day after the Lee Jae Myung government imposed the third round of housing loan regulations. Yonhap

Banking consumers are increasingly turning to overdraft accounts and withdrawing cash — a trend widely seen as an attempt to bypass tightening lending regulations, data showed Friday.

Known as a "minus account" in Korea, an overdraft account allows users to withdraw more than their available balance, up to a pre-approved limit.

When the balance dips below zero, the account essentially functions as a short-term loan.

This flexibility, however, comes at a cost, as interest rates are typically higher than those on standard personal loans.

According to data from the Financial Supervisory Service (FSS) obtained by Rep. Lee Yang-soo of the main opposition People Power Party, 542,279 new overdraft accounts were opened as of the end of June.

At this pace, the FSS projects, the number of new overdraft accounts in 2025 will reach the highest level in the past five years.

The number of new accounts rose from 837,780 in 2021 to 954,994 in 2022, peaking at 1.01 million in 2023 before falling to 891,788 in 2024.

As of the end of June, the outstanding balance of overdraft accounts at 19 banks, including both nationwide and regional institutions, totaled 71.4 trillion won ($50.27 billion).

That figure exceeds both 69.45 trillion won of 2023 and 70.48 trillion won of 2024, underscoring growing demand for flexible borrowing options.

This increase is widely interpreted as a consumer response to stricter regulations on mortgage loans.

In less than six months after taking office, the Lee Jae Myung government has introduced three rounds of loan restrictions — on June 27, Sept. 7 and Oct. 15 — aimed at curbing sharp fluctuations in housing prices.

However, the tighter rules have heightened anxiety over future borrowing capacity, prompting many consumers to preemptively open overdraft accounts while they still qualify.

“Once used primarily for daily expenses, overdraft accounts now appear to be used more strategically, particularly to fund real estate transactions,” said Shin Il-soon, an economics professor at Inha University. “Many consumers are not using them out of immediate need, but to prepare for sudden opportunities in the market.”

Against this backdrop, Rep. Lee raised concerns about growing dependence on high-interest borrowing.

“Overdraft accounts carry higher interest rates than standard personal loans, so increased reliance on them only adds to the financial burden on consumers,” he warned.

He added, “With household debt already at concerning levels, financial authorities must urgently review the expanding use of overdraft accounts, which may appear to encourage borrowing, and implement fundamental measures to stabilize household debt and reduce loan demand.”

Meanwhile, market observers have voiced concerns over the emergence of strategies to evade mortgage rules.

Some private lenders and loan brokers have been encouraging the use of business loans to get around housing measures such as the loan-to-value ratio and the debt service ratio.

In response, financial authorities plan to launch a full-scale investigation into the improper use of business loans for home purchases.