Borrowers take out new loans to repay card loans as balances near W1.7tr

The outstanding balance of card loan refinancing — where borrowers take out new loans to repay existing card debt they cannot service — has approached 1.7 trillion won ($1.25 billion), raising concerns that vulnerable borrowers already burdened by high interest rates could face even steeper costs when their loan terms are reset during refinancing.

The combined card loan refinancing balance at nine card companies stood at 1.6953 trillion won at the end of August, up 22.7 percent from 1.38 trillion won at the end of last year, according to the financial industry Tuesday. The figure also exceeds the end-2024 balance of 1.65 trillion won by 2.9 percent. Card loan refinancing allows borrowers who struggle to repay existing card loans to take out new loans to settle their outstanding debt.

As loan terms are renegotiated during the refinancing process, some borrowers may end up paying higher rates than before. Unlike conventional low-rate loan switches, card loan refinancing is primarily designed to ease the immediate repayment burden by extending the loan term for borrowers who can no longer service their existing debt normally.

"Card loan refinancing is meant to extend the maturity for borrowers with weakened repayment capacity, improving the chances they can eventually pay back what they owe," an official in the credit finance industry said. "By the time they seek refinancing, many have already seen their credit scores or debt conditions deteriorate because they can no longer repay the original loan normally. When rates are recalculated under those circumstances, the new rate can end up higher than before."

The already elevated interest rates on card loans add to the strain. Among borrowers with credit scores below 700, Woori Card posted the highest average rate at 18.42 percent, followed by Shinhan Card at 17.20 percent, KB Kookmin Card at 16.90 percent and Hana Card at 16.48 percent. In the 501-to-600 score range, Woori Card charged 19.18 percent, Shinhan Card 18.08 percent, KB Kookmin Card 17.98 percent and Hana Card 17.92 percent — meaning borrowers with low credit scores are being charged rates approaching 20 percent.

KB Kookmin Card, for instance, sets the floor for new card loan rates at 3.9 percent per year, but applies a minimum of 7.5 percent for refinancing loans. "Refinancing is not simply an extension of the existing loan — it involves reassessing the borrower's conditions at the time of refinancing and issuing a new loan, which means the interest rate has to be recalculated," a card company official said.

However, another industry official cautioned against treating refinancing as synonymous with higher rates. "The terms vary depending on the borrower's situation and purpose," the official said. "A lower rate might come with a reduced credit limit, or a higher limit might mean a higher rate — so it is difficult to generalize refinancing as a rate increase."

Even so, the simultaneous rise in refinancing balances and high card loan rates for low-credit borrowers is seen as a warning sign of deteriorating repayment capacity among vulnerable borrowers. "Even if refinancing helps avoid an immediate default, prolonged high-rate debt without any improvement in income or repayment ability can erode a borrower's financial health," a credit finance industry official said. "If this trend accumulates, it could also weigh on card companies' delinquency rates and asset quality."