Some W78.6 trillion worth of household loans in Korea are at risk of default if interest rates rise next year. That is 6.4 percent of the total household debt as of the end of September (US$1=W1,208).
The Bank of Korea raised the concerns in a report to the National Assembly on Monday.
The at-risk loans were taken out by people who shoulder debts from multiple lenders and people with low credit ratings in the bottom 10 percent of the income bracket.
They are the most vulnerable to bankruptcy should interest rates rise.
Low-credit borrowers took out 74 percent of their loans from small savings banks and loan sharks that charge higher interest than commercial banks.
The BOK warned of a chain reaction whereby further rises in U.S. interest rates could trigger higher rates here and lead to an increased number of defaults that would then threaten the financial health of Korean banks, possibly requiring a government bailout.