The cumulative amount of personal credit loans jointly supplied by online investment-linked finance firms and savings banks has exceeded 500 billion won. Most users are mid-to-low credit borrowers, while the delinquency rate is below 1 percent.

The Korea Online Investment-Linked Finance Association said on Monday the cumulative amount of linked-investment personal credit loans handled by savings banks through On2U firms totalled 502.2 billion won as of July 3.

Linked investment between On2U firms and savings banks is structured so that On2U firms assess a borrower’s creditworthiness and savings banks provide the loan funding. It began in May last year as an innovative financial service and provides mid-interest credit loans to mid-to-low credit borrowers who have had difficulty obtaining loans from the traditional financial sector.

According to the association, the average interest rate on linked loans is 11.95 percent a year and the average borrower credit score is 739. The average loan amount per case is 14.89 million won, and the delinquency rate was 0.75 percent.

More than 95 percent of loan users are mid-to-low credit borrowers in the bottom 50 percent by credit score. Under the former credit rating system, most borrowers were in grades 4 to 5.

The association explained that the main users are borrowers with steady income and repayment capacity but who did not receive sufficient loan opportunities under existing lenders’ credit evaluation systems.

Outstanding loans across the entire On2U sector are about 0.11 percent of South Korea’s 1,993 trillion won in outstanding household credit. Compared with 13 trillion won in outstanding loans in the loan-shark sector, it is less than one-sixth.

On2U-savings bank linked loans are offered through loan comparison services such as Toss, Finda, Banksalad, Naver Pay and Kakao Pay. Financial consumers compare rates and limits by financial company, then directly choose and apply for On2U firms’ loan products.

The association urged caution over online loan advertisements that impersonate legitimate On2U firms or financial companies. It explained that legitimate On2U firms do not demand advance payments, fees or deposits as a condition for executing a loan.

Hong Jae-moon (홍재문), chairman of the Korea Online Investment-Linked Finance Association, said, "The On2U sector is still small in South Korea’s household lending market, but it is showing the possibility that it can provide new financial opportunities to mid-to-low credit borrowers while also managing soundness." He added, "We will expand the supply of mid-interest loans in line with the policy direction of financial authorities."