Illegal loans via 'smartphone rentals' see interest rates soar to 160%

A new type of illegal lending has recently emerged where money is lent to people in urgent need of cash under the guise of mobile phone rental contracts. It has been confirmed that to bypass the interest rate cap of 20% under the Money Lending Business Act, lenders collude with rental companies to sign only rental agreements instead of loan contracts.

In one confirmed case, a victim borrowed 18 million won from a loan shark by signing a false rental agreement to 'rent' 10 phones for six months. The interest rate for this deal exceeded 160% per annum. When the victim failed to repay, a collection agency threatened to report them for embezzlement unless they withdrew a complaint filed against the lender.

The Financial Supervisory Service (FSS) issued a consumer alert, stating that if a loan requires a false rental contract as a condition, it is highly likely to be an illegal private loan. Eight cases of damage have been recently confirmed, and the FSS has requested police investigations into the matter.