iM Bank's Balance Transfer Loans Priced 2.33 Percentage Points Higher Than New Loans
Interest rates on 'balance transfer loans' at iM Bank—where borrowers repay existing loans and take out new ones—were found to be up to 2.33 percentage points higher than rates on new loans. Balance transfer loans, which should reduce borrowers' interest burden with lower rates, are instead being priced more expensively.
According to data submitted by the Financial Supervisory Service to Rep. Park Sung-hoon of the ruling People Power Party on the National Assembly's Political Affairs Committee, 11 of 16 banks offering mortgage loans had average balance transfer rates higher than average rates on ordinary new mortgages as of July this year. Balance transfer loans are a system that allows borrowers to switch financial institutions in search of lower rates and better terms.
The largest gap was at iM Bank, where the balance transfer rate of 7.17% per annum was 2.33 percentage points higher than the new mortgage rate of 4.84%. Jeonbuk, Jeju, Busan, and Suhyup banks also charged balance transfer rates 0.39 to 0.53 percentage points higher than new loan rates.
The same phenomenon appeared at three of the five major banks: Hana, Woori, and NH NongHyup. At Woori Bank, the balance transfer rate of 4.71% was 0.37 percentage points higher than the new mortgage rate of 4.34%. NH NongHyup Bank and Hana Bank showed gaps of 0.24 and 0.18 percentage points, respectively.
Credit loans told a similar story. At 10 of 16 banks, balance transfer rates were higher than ordinary new loan rates. Gwangju Bank had the largest gap at 1.29 percentage points, followed by Toss Bank and Busan Bank at 1.22 percentage points each. Among the five major banks, all but Woori Bank charged higher rates on balance transfer credit loans than on new loans; Hana Bank's ordinary new credit loan rate was 4.70% per annum, compared with 5.72% for balance transfer loans.
However, financial authorities explained that it is difficult to conclude that balance transfer rates are set higher based on average rates alone, since balance transfer loans and ordinary new loans differ in borrowers' creditworthiness, collateral value, and product composition. Rep. Park pointed out that "from consumers' perspective, the effectiveness is inevitably questionable," adding that "financial authorities must examine the cause of this rate inversion and assess how much this system actually reduces borrowers' interest burdens."
