A non-face-to-face switch service is now available for lump-sum jeonsae loans for lease deals in South Korea alongside the previously available switch programs for credit loans and mortgage loans, raising expectations financial consumers could potentially see reductions in their interest.

The Financial Services Commission announced on Tuesday that the lease loan switch service will start from Wednesday. “Borrowers will be able to switch their guaranteed lease loans for all types of housing to new loans with lower interest rates,” the regulator said.

A guaranteed lease loan refers to a loan secured by a guarantee from guarantee agencies, including the Korea Housing Finance Corp., Korea Housing & Urban Guarantee Corp., and Seoul Guarantee Insurance Co. The lease loans subject to this new loan switch service are 120 trillion won ($90.2 billion) in guaranteed lease loans out of the total 170 trillion won lease loans, excluding low-interest policy loans and loans provided through agreements between financial institutions and local governments.

The credit loan switch service, introduced in May 2023, prompted 118,773 borrowers to switch loans to total 2.71 trillion won over eight months. This led to an average reduction of 1.6 percentage points in loan interest rates, resulting in annual savings of 570,000 won per person. Individual credit ratings also saw an average increase of 36 points due to the availability of lower interest rate loans. A similar effect is anticipated with the new lease loan switch program.

Borrowers can switch to a new loan if the new loan is from the same guarantor as their existing loan guarantor. They can compare new loan products with the same guarantor from four loan platforms—Naver Pay, Kakaopay, Toss, and Finda.

Currently, borrowers can only switch from their existing loan to a new one during the 3-to-12 month and 22-to-24-month periods of the underlying lease deal. This is due to the varying loan period limits set by different guarantors, but the financial authority plans to expand switching opportunities to any time within the 3-to-24-month period starting in July 2024, following consultations with guarantors.

The loan ceiling is capped at the balance of the existing loan, but it can be raised within the guarantee limits of each guarantor if the security deposit increases during lease contract renewal.

Borrowers of rent deposits can also apply for the loan switch service if guarantors guarantee their loans. Required documents include a lease contract with a confirmed date and a receipt for the security deposit payment.

There will be no cap on the amount for the switched loans at each financial institution, according to the authority, given the already limited availability for the lease loan switch due to the lease contract period. Loans in arrears or subject to legal disputes, along with low-interest policy loans, are ineligible for the switch service.

By Han Woo-ram, Yoo Joon-ho, and Chang Iou-chung

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