Rates of interest on loans are soaring to record levels as regulations remain in place to limit the size of loans
The average annual rate on loans that were new and unsecured for November stood at 5.16% , according to Bank of Korea (BOK) increasing by 0.54 percent from the previous month. This rate has been the best since 5.29 percent in September 2014 and is the first time it’s exceeded five percent since the month of October.
The mortgage interest rate also soared by 0.25 percentage points in a single month to 3.51 percent. This is the highest level since 3.54 percentage on July 14, 2014. New loans no credit check called Paydaynow that were made to households was 3.61 percent on average, an increase of 0.15 percentage points over the month and the most ever since the end of December.
“The rate of interest on loans for households has increased as a result of the rise of the interest rates benchmarked, and is affected by the rise in the interest margins of banks to reduce the burden of debt on households,” explained Song Jae Chang, who heads BOK’s BOK financial statistics department. “People with credit score high are restricted to borrowing in excess of their annual income limits, and the average rate of interest on loans that are not secured has increased because more loans are offered to those who have average to low credit ratings. “
In August the Financial Supervisory Service asked banks to reduce the maximum amount for non-secured loans to be matched to the annual income of borrowers as well as the number of banks that have complied with the request. Customers received an average of 1.57 percent on new deposits in August, which is which is up 0.28 percentage points over the previous month before. The new term deposits paid interest at 1.51 percent, an increase of 0.23 percentage points, which is the most since January of last year.
Banks have increased the interest rate on savings and deposits with a greater margin
Banks increased their interest on savings and deposits by a larger percentage or in line with the rate of increase in the rate of interest, after many complained the fact that banks increased the rate of interest on loans by too however not by too much on loans. deposits. The policy rate increased 0.25 percent to 1percent in November.
There was an 1.66 percentage point gap between the latest interest on deposits and loans decreasing the gap by 0.12 percentage points on the month. While the interest rate on loans has increased, many people have decided to borrow with the variable rate of interest which fluctuates in response to economic conditions.
Of the total loans given to homeowners in the month of November 82.3 percent of them chose to use variable interest rates, an increase of 3 percentage points in the month. “There has been a drop in mortgages that account for a large proportion of fixed interest loans, and the amount of people borrowing with fixed interest has decreased,” BOK’s Song said.