More and More Young Koreans Default on Their Debt

More and more Koreans in their 20s and 30s are unable to repay their loans amid rising high interest rates compounded by high inflation.

According to the Financial Supervisory Service, outstanding debt from borrowers in their 20s at the top three online banks -- Kakao Bank, K-Bank and Toss Bank -- stood at W58.7 billion in the second quarter of this year, up 3.7 times from a year ago (US$1=W1,326).

Their debt delinquency rate was 2.41 percent, compared to 1.11 percent for people in their 30s, 0.79 percent in their 40s and 0.81 percent in their 50s.

The main reason is that it is very easy to get a loan from an online bank through the app and conditions are less stringent than at established commercial banks. Emergency or payday loans, which extend anywhere from W500,000 to W3 million require just a simple paper screening process, but the interest rate ranges from five to 15 percent a year.

According to Minjoo Party lawmaker Yoon Young-deok, the three online banks had doled out W2.66 trillion worth of new loans as of the end of last month, up more than 70 percent compared to 2021. Over the same period, the amount of outstanding debt jumped 4.7 times to W20 billion, and borrowers in their 20s and 30 accounted for 70 percent.

In the case of a W1 million low-interest petty-cash loan the government offers to people with low credit ratings, the delinquency rate among borrowers in their 20s had already reached 21.7 percent just two months after it started being offered in March this year.