- Published 2026.11.04 09:45
Delinquency for borrowers under 30 exceeds 50%, exposing repayment limits of vulnerable groups
Next year revamped as livelihood protection loan, expanded to 600 billion won
Debt restructuring link a task amid debate over resource allocation after income criteria scrapped
A last-resort policy loan of up to 1 million won, designed to protect low-income, low-credit borrowers shut out of the mainstream financial system from illegal private lending, is effectively losing its repayment function. One in two borrowers is failing to repay principal and interest on time, showing how far repayment capacity has collapsed among vulnerable groups, yet financial authorities are pushing quantitative changes focused on expanding eligibility and extending maturities rather than debt restructuring or self-reliance support, drawing criticism that they are fueling structural bad debt.
According to data submitted by the Financial Services Commission to the National Assembly on Nov. 4, the delinquency rate on illegal private lending prevention loans (formerly small living expense loans) handled by the Korea Inclusive Finance Agency stood at 44.3% as of the end of September 2026. Of the total outstanding balance of 314 billion won (about $232 million) as of end-September, 139.1 billion won (about $103 million) was more than one month overdue on principal and interest.
The illegal private lending prevention loan was launched in March 2023 under the name small living expense loan to support low-credit borrowers with annual income of 35 million won (about $25,830) or less and credit scores in the bottom 20%. It was intended as a financial safety net to keep people in urgent need of living expenses from falling into the trap of underground private lending that charges interest of up to several hundred percent.
But the delinquency rate, which was 11.7% at the end of 2023, the program's first year, surged to 32.2% in 2024 and 37.8% in 2025, then jumped to 42.0% in June and 44.3% three months later. In less than three years since launch, the delinquency rate has soared by 32.6 percentage points, hardening into a bad-debt structure where normal loan collection no longer works.
The fact that delinquency rises more steeply among younger age groups clearly shows the qualitative deterioration of bad debt. By age group, the delinquency rate was highest for those under 30 at 50.7%, followed by those in their 30s at 45.5%, 40s at 43.4%, 50s at 41.4%, 60s at 39.4%, and 70s and older at 38.9%.
The reality that nearly half of young adults cannot repay even a small loan of just over 1 million won and fall into financial default shows how deteriorating job quality and falling real incomes are directly linked to livelihood limits. If young people who fail to build initial credit are branded as policy finance delinquents, they face a high risk of being trapped in a long-term cycle of poverty, not only in returning to normal financial life but also in job seeking and asset building overall.
Despite this surge in bad debt, the solution offered by financial authorities is criticized as potentially creating another massive pool of latent bad debt. The government plans to expand and revamp the product next year under the tentative name K-Livelihood Protection Loan, increasing new supply to 600 billion won (about $443 million).
The new program will sharply lower the interest rate from the current annual 12.5% to 4.5% and extend the repayment period to up to 10 years. It will also scrap the income criteria entirely and significantly ease the credit score threshold from the bottom 20% to the bottom 50%.
The plan is to lower monthly repayments to around 10,000 won to dilute short-term bad debt indicators such as the delinquency rate, but critics say it is not a prescription to restore fundamental repayment capacity but merely a stopgap that postpones delinquency recognition by 10 years. Lending more to vulnerable borrowers with no repayment ability and buying time through principal and interest deferral is highly likely to only bring side effects of worsening asset soundness and turning borrowers into permanent debtors.
Policy validity controversy is also intensifying over the complete removal of income requirements. While the stated purpose is to broadly embrace borrowers in urgent need of cash, there are concerns that limited resources funded by taxpayer money and financial sector contributions will flow to those with repayment capacity, potentially excluding the extreme poor and ultra-low-credit borrowers.
The FSC explained that it will carefully screen the urgency and necessity of funds through in-person counseling to filter out ineligible high-income earners. But criticism persists that without quantitative income criteria, qualitative assessment by counter counselors alone is insufficient to completely block moral hazard such as intentional non-repayment.
For the last-resort financial safety net to fulfill its original purpose, it must guard against the illusion created by reckless supply expansion and maturity extension. Only by facing the reality that the bad debt rate exceeds 40% and preparing alternatives from the loan screening stage can the program be expected to take root. Beyond simply lending money, it must prove in the implementation process whether active debt restructuring and job and welfare service linkage programs can be organically combined from the screening stage onward.
(Dollar figures are approximate, converted automatically at 1,000 won = $0.738, the rate on Nov. 8, 2026.)
※ This article is an AI translation of the Korean original published by Korea Credit News; it was checked by automated quality guards and published by the English edition desk.
