Government to Overhaul Mid-Interest Lending System

As borrowers with credit scores in the 800s are facing difficulties due to high loan interest burdens, the government will comprehensively reform the mid-interest loan system. Amid rising thresholds for bank loans and growing concerns about "downward migration" – where mid-credit borrowers are pushed into lower credit tiers – the government plans to revise the Saitdol loan system and establish dedicated products for sole proprietors, pursuing both increased supply and lower interest rates simultaneously.

The government will reform the Saitdol loan system, a representative mid-interest product. Introduced in 2016 for mid-credit borrowers, Saitdol loans have faced criticism for a "low-credit skew" since April last year when a requirement was applied to "supply over 70% to borrowers in the bottom 50% credit tier," failing to adequately meet the funding demands of mid-credit borrowers. Accordingly, financial authorities will adjust the supply requirement to "supply over 70% to borrowers in the 20-50% credit tier," redesigning Saitdol loans to focus on supporting mid-credit borrowers as originally intended. These reforms are expected to lower Saitdol I interest rates to 7.14-9.3% and Saitdol II rates to 11.2-14.6%, enabling an additional supply of up to 100 billion won, with insurance premium rates reduced by up to 5.2 percentage points.

A dedicated mid-interest loan product for sole proprietors, "Sajangnim Saitdol" (Boss Saitdol), will be newly established. It will introduce customized screening reflecting business growth potential and stability, aiming to induce an additional supply of up to 500 billion won annually.

The private mid-interest lending system will also undergo reforms. The institutions handling Saitdol II will be expanded from primarily savings banks to include credit card companies and capital companies, aiming for an additional supply of up to 500 billion won annually. Leveraging the data utilization and credit assessment capabilities of the non-bank financial institution sector could enable interest rates of around 8-12%, contributing to easing the interest rate layering phenomenon. Furthermore, revisions will be made to reflect changes in loan costs, guiding interest rate reductions. The interest rate conditions will be lowered by up to 1.25 percentage points – by rationalizing the credit cost formula excluding loan cost fluctuations beyond funding rates and deposit insurance premiums – to encourage financial institutions to voluntarily lower rates. Products supplied at rates more than 3 percentage points lower than the current requirements in the secondary financial sector will be separately classified as "Mid-Interest Loan 1" to provide regulatory incentives.

New products will be launched for emergency living expenses for mid- to low-credit borrowers in the bottom 50% of the credit score range. These will target mid- to low-credit individuals, excluding those with multiple homes, with loan limits expected to be under 10 million won. Financial authorities plan to pre-announce mid-interest loan supply targets for each financial institution and disclose details such as average rates, balances, and supply volumes by credit grade to foster voluntary competition. Chairman Lee emphasized the realization of inclusive finance by supporting mid- to low-credit borrowers together through cooperation between the government and the private sector.