A new report highlights how differing costs and uses of card loans, cash services, and revolving credit in South Korea influence household debt and financial health, amid rising borrowing trends.
For consumers who need a small amount of cash quickly and cannot easily access a bank loan, the choice between card loans, cash services and revolving credit can carry very different costs. A report by eDaily used a hypothetical borrower seeking 1m won to show how the three products work in practice, and why the right option depends on the amount needed, the repayment period and the borrower’s wider credit plans.
Card loans are longer-term credit extended by card issuers, with principal and interest repaid over time. Cash services are short-term advances taken within a card limit, usually repaid within about one or two months. Revolving credit, by contrast, is not a fresh loan at all: it allows a cardholder to pay only part of the bill and carry the rest into the next month, but interest or fees are charged on the unpaid balance.
The cost gap can be significant. According to the Korea Financial Consumers’ Federation, as of August this year the average card-loan rate among eight dedicated card issuers ranged from 11.45% to 15.43%. Cash-service rates were higher, at 16.52% to 18.57%, while revolving credit ranged from 16.09% to 18.48%. Based on those figures, borrowing 1m won for a year at 11.45% would cost roughly 114,500 won in interest, compared with about 165,200 won at 16.52%, although cash services are typically used for much shorter periods.
That makes timing crucial. Finance industry officials told eDaily that cash services may be more suitable if the borrower can clear the balance in full by the next payment date, while card loans may be better if repayment needs to be spread over several months. Revolving credit can be especially expensive if the borrower keeps rolling over only part of the bill, because the unpaid amount builds up and the repayment burden can snowball.
The scale of use also shows how deeply these products are embedded in household finance. At the end of August, the combined card-loan balance at nine dedicated card issuers stood at 42.6852 trillion won, far above cash-service balances of 6.9039 trillion won and revolving-credit balances of 6.9994 trillion won. Yet cumulative cash-service use this year has been larger than card-loan use: through August, individuals had used 35.0983 trillion won in cash services versus 25.966 trillion won in card loans. According to the Korea Financial Consumers’ Federation, revolving usage has risen for five consecutive months.
Lenders and advisers also warn that the impact goes beyond immediate interest costs. Because credit-card borrowing is recorded as fresh debt, repeated use or borrowing near the limit can hurt credit scores and make later loan approvals harder. Card loans are also included in debt-service ratio, or DSR, calculations, which can reduce the amount available for a mortgage or other major borrowing. A financial-sector official told eDaily that the key question is whether the borrower can repay both principal and interest on the agreed date, adding that anyone already juggling multiple debts should consider counselling from Korea’s Credit Counselling and Recovery Service rather than taking on more card-based borrowing.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
