Banks' entry heats up auto loan market

By Jhoo Dong-chan

Major lenders are rushing into the car loan business as it has grown into a 60 trillion won ($55.5 billion) market in Korea. Not only major banks but also credit card companies are now eyeing the market that has shown more than 10 percent growth in recent years.

Of the nation's top five major banks, Shinhan Bank was the first to start providing an auto loan service, Shinhan MyCar. It allocated 70 billion won per month on average for loan product last year, but expanded that to 150 billion won per month this year to meet mounting customer demand.

The bank, which was named as an official sponsor of the Korea Baseball League this year, has also decided to promote its Shinhan MyCar loans to the forefront in the nation's most popular sports.

Following its rival's lead, KB Kookmin Bank also recently started making car loans, KB Mobil Magic Car Loan, via smartphone.

The bank's affiliate KB Capital has already provided a similar auto loan service, but KB Kookmin Bank said it is offering lower interest rates up to 3.63 percent annually for a loan on a new car and 4.49 percent for a loan on a used car. KB Capital is reportedly offering up to 3.9 percent annually on a loan for a new car and 9.9 percent for one on a used car.

“It is now difficult for major banks to improve their domestic earnings with conventional banking services. Vehicle financing could be an answer,” the official said.

According to Financial Supervisory Service (FSS) data, capital firms are still dominating the nation's auto loan market with an 85 percent share. Credit card companies and banks account for 10 percent and 5 percent now, but observers say the game could change following the entry of major banks.

“More banks are now looking for a new profit source. Auto loans could be very helpful for banks to secure long-term customers,” an industry observer said.

In a bid to defend their shares of the market, capital firms are trying their utmost to differentiate themselves from newcomers. The nation's largest capital firm Hyundai Capital has recently introduced a fast-track auto loan service that completes a loan qualification within five minutes.

Credit card firms are also entering into the market.

Samsung Card has started expanding its 24-hour loan service into auto financing while Lotte Card has introduced its new vehicle financing platform Lotte Card Auto Direct where customers can access their credit line and apply for the loan via smartphone.