By Kang Seung-woo
Over four in 10 people who borrow from private money lenders pay interest of more than 40 percent.
The interest rate for loans cannot exceed 44 percent according to a law enacted in July in order to help the increasing number of those credit-starved, cash-strapped people.
The Korea Asset Management Corp. (KAMCO) recently conducted a survey of 600 people aged between 20 and 59, who had taken out more than 1 million won in loans within the past year.
The survey showed 44.5 percent of those who relied on nonbank private loan providers paid interest charges at 10 percent or above.
Interestingly, those who were most credit-crunched were better aware of their credit ratings than the average. About 64.5 percent of those who took private loans knew about their credit-worthiness. The overall average is 53.2 percent.
A possible explanation for this is that they have been desperate enough to find anybody who will lend them money after their requests for loans from banks and other reputable sources were rejected and in the process have come to be aware of their individual credit ratings.
The survey also showed that those who borrow from private money lenders are on average rated at seven in the credit scale of one to 10 with one being best.
Ratings for individuals are compiled by three agencies _ the National Information & Credit Evaluation (NICE), Korea Information Service (KIS) and Korea Credit Bureau (KCB).
Banks and other financial institutions rate individuals on the basis of the agencies’ information plus their own database.
In order to help those who are struggling financially, the government has introduced loan programs for low-income applicants, with “Sunshine Loans” being the latest.