One borrower, surnamed Kim, took out an unsecured loan through Bank A's mobile app and agreed to a 0.4 percentage point rate discount on the condition of transferring salary payments to the bank. Kim continued to deposit the salary but never received the discount because the salary details were not registered in the app.
The Financial Supervisory Service on the 21st issued a consumer advisory on using bank loans, drawing on actual complaints filed with the regulator. The FSS urged borrowers to check closely the conditions attached to salary-transfer rate discounts, the method of repaying principal and interest, the loss of the benefit of time in the event of a missed payment, and whether rates change when a loan is rolled over.
The regulator first stressed that borrowers seeking a rate discount for salary transfers must register their salary details with the lending bank or mark the transfer as salary in the account description. For loans taken out without visiting a branch, the employer's name, payday and receiving account must be entered in the bank's application before salary transfers are recognized.
Some banks also count transfers as salary deposits when a customer who is paid into an account at another bank moves a set amount or more into an account at the lending bank. In that case, the transfer description must be marked as salary, wages, monthly pay or a bonus. Without such a marking, the bank's computer system cannot identify the transfer as salary, and the discount may not be applied. Borrowers who change jobs must also notify the lending bank or update their salary details.
Borrowers should also weigh their finances and plans for building assets when choosing how to repay principal and interest. Repayment methods fall into three types: a lump-sum repayment at maturity, equal total payments, and equal principal payments.
Under a lump-sum repayment at maturity, the borrower pays only interest during the loan term and repays the entire principal at maturity. The burden during the term is smaller, but the full principal comes due at the end.
Under equal total payments, the combined principal and interest is divided across the loan term so that the borrower pays the same amount each month. Spending is easier to manage, but because little principal is repaid in the early stages, total interest is higher than under equal principal payments.
Under equal principal payments, the principal is repaid in equal monthly amounts and interest is charged on the remaining balance. Total interest is the lowest of the three methods, but payments are largest in the early stages of the loan.
Borrowers should also be aware that missing payments on principal or interest can cost them the benefit of time, the right of a debtor not to repay the entire outstanding balance at once before the loan matures.
For household loans, the benefit of time can be lost if interest goes unpaid for one month or if two or more installment payments are missed consecutively. For mortgage loans, the thresholds are two months of unpaid interest and three missed installments.
Once the benefit of time is lost, the entire outstanding balance becomes due and overdue interest is charged on the full amount. If the loan principal is less than 50 million won, however, overdue interest applies only to the monthly payments due through maturity.
Banks must notify the debtor at least seven business days before the date the benefit of time is lost. If the notice does not arrive by then, the bank may terminate the benefit of time only after seven business days have passed from the date the notice actually arrives.
Borrowers should also check that rates can rise more than expected when a loan is extended. Floating-rate loans consist of a base rate and a spread. During the loan term, the spread stays fixed unless the borrower fails to meet the conditions for a preferential rate; the base rate itself can still move independently. Both the base rate and the spread are recalculated when the loan is renewed at maturity.
As a result, the change in market rates does not necessarily match the change in the actual lending rate, and the rate may be higher or lower than when the loan was first taken out. If a borrower's credit standing has deteriorated significantly by the time of the extension, the bank may refuse to extend the loan or demand a higher rate, a shorter maturity or partial repayment.
