The government plans to offer loans to people with the lowest credit ratings as a way to save them having to borrow from loan sharks, officials said Monday.
Financial authorities operate a number of loan programs for people with bad credit scores, lending them money at a maximum 10.5 percent annual interest rate. Because the rate is fixed, however, those with the worst credit ratings at the bottom and who needed to be charged higher interest, were left out of the programs.
Financial regulators and the ruling Democratic Party are expected to meet this week to amend the regulations so that the people on the lowest rung can access loans at an annual interest rate of 18 to 20 percent, according to the officials. The rate would be lower than the 24 percent collected by private lenders, they said.
"We set up the loans to benefit a large group of people through low interest rates, which inevitably concentrated the benefits for people in credit tiers 6 to 7," an official said. "The negative impact was that people in tiers 8 to 10 consequently were pushed out from the loan programs to resort to private lenders."
The country's credit ratings runs from one to 10, with higher numbers meaning worse scores.
Data from the Korea Credit Bureau showed that among the borrowers of these special loans in 2016 and 2017, 39.3 percent were in tier 7 and 23.6 percent in tier 6. The number of people in tier 8 was much lower, at 13.1 percent. Tier 9 accounted for just 1 percent.
Separate data show that 75 percent of borrowers from private lenders are in tiers 7 to 10.
Officials said the proposals were reported to the presidential office late November and received verbal approval. (Yonhap)