Customers receive loan consultations at a commercial bank in Gyeonggi on July 15.NEWS1
A borrower who took out a 600 million won ($447,000) mortgage in February last year had been paying it down whenever extra cash was available, despite incurring early repayment fees, with about 50 million won paid off that way.
But three months ago, the borrower stopped making early repayments.
“I keep hearing how difficult it is to get a loan these days, so paying it off early almost feels like I’d be putting myself at a disadvantage,” the borrower said.
Fewer borrowers are paying down or off their loans ahead of schedule as household lending rules tighten. Analysts say that despite lower early repayment costs, borrowers are increasingly reluctant to give up existing loans amid concerns that access to credit could tighten again at any time.
The value of early payments on household loans at Korea’s five major banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — totaled 19.56 trillion won from January through August this year, down 12.7 percent from the same period last year, according to data compiled Monday.
The number of early payments also fell 8.1 percent to 660,062. As a result, the banks collected 55.8 billion won in early payment fees, down 39.5 percent from 92.3 billion won during the same period last year.
The decline was also clear on a monthly basis. Early payments fell 35.7 percent from 3.02 trillion won in January to 1.94 trillion won in August. The number of transactions dropped 39.8 percent over the same period, from 97,224 to 58,570.
Early payments of unsecured personal loans fell particularly sharply, plunging 60 percent from 402.1 billion won to 160.8 billion won.
The decline came even as fees fell and banks offered fee waivers to encourage borrowers to pay down their debt. In January last year, the five major banks cut their average early payment fee on fixed-rate mortgages from 1.4 percent to 0.65 percent.
A customer is seen at a bank loan counter in Seoul on Aug. 5.YONHAP
KB Kookmin has temporarily waived early payment fees on unsecured household loans since July, while NH Nonghyup waived the fees entirely on some mortgages in May and June.
Financial industry sources attribute the trend in part to growing demand for funds to invest in stocks and housing, as well as concerns that banks could exhaust their lending quotas.
“When the perception spreads that access to loans is about to be cut off, borrowers have an incentive to hold on to loans even when they can afford to repay them,” a financial authority source said. “Sending an excessive signal that lending could suddenly dry up is not desirable.”
Frequent changes to lending restrictions have also played a role.
Korea’s 13 domestic banks imposed restrictions on household lending 149 times between January of last year and Aug. 11 this year, according to Financial Supervisory Service data obtained by Democratic Party Rep. Han Min-soo, a member of the National Assembly’s National Policy Committee.
The measures ranged from suspending mortgage credit insurance and mortgage credit guarantee products to halting online mortgage applications and reducing credit limits for unsecured loans and overdraft accounts.
Experts say the lack of predictability in lending policy has not only hurt borrowers with genuine financing needs but also fueled a form of “funds FOMO” — a rush to secure credit before it becomes unavailable — and made borrowers more reluctant to repay loans early.
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
