By Kang Seung-woo
Credit card firms have seen their loan services gaining popularity among users thanks to less stringent processes.
However, the easier-to-use system may produce bad loans both to the detriment of users and the card firms.
According to the Financial Supervisory Service (FSS), the amount of lending by credit card companies reached 14.1 trillion won as of the end of August, up 23.7 percent from the end of last year, surpassing cash advance services by banks at 12.5 trillion won, which saw a rise of 3.3 percent during the cited period.
Borrowing money from credit card firms is much easier and less laborious than taking out a loan from banks.
Borrowers can get money from credit-card issuers over telephone or the Internet, while at banks they need to stop by in person and fill out a variety of documents.
In addition, the card issuers’ focus on expanding its business portfolio of card loan services is also attributed to its growth.
As the profit from credit card sales has decreased due to the decline in card commission at small- and mid-sized affiliates and cash advance services have also seen an earnings drop, affected by the reduction and abolition of handling charges, they are turning their sights to loans.
But there are rising concerns over their popularity.
The default rate is still at a low 1 percent, but when the economic conditions weaken and households become unable to pay their debts, asset soundness may deteriorate and trigger a situation like the 2003 credit card debacle, which involved more than 3 million people defaulting on their credit cards.
The nation’s financial watchdog is ready to take action against potential risks.
“We have already kept a close watch on the risks,” an FSS official said. “We plan to launch on-site inspections and strengthen risk management.”