The Bank of Korea’s benchmark interest rate has been rising rapidly, pushing auto loan rates above 6%.
Hyundai Capital, which manages auto financing for Hyundai and Kia, reported that its M auto loan rates were at 2.5% for 36 months, 2.7% for 48 months, and 2.9% for 60 months at the start of the year. However, as of November, just ten months later, the M auto loan rates for Kia are now at 5.9% for 36 months, 6.0% for 48 months, and 6.1% for 60 months. Interest rates have more than doubled.
For a mid-sized car costing 30 million KRW purchased on a 36-month loan, the interest was 750,000 KRW in January, but now it has jumped to 1,770,000 KRW. Consumers are facing a scenario where they have to pay over 1 million KRW in additional interest within just ten months. Some who signed contracts in January are now having to pay more interest due to delays in vehicle delivery, leading to situations where they opt to cancel their contracts.
When interest rates were lower, full financing for cars was possible, but stricter scrutiny by financial institutions has made it difficult to even get approved for financing. Full financing is now hard to obtain, and a down payment of 10-20% of the vehicle price is required.
Approval for financing has become exceedingly challenging. Yujihyun, head of the Hwajeong branch of Ssangyong Motor, stated, “Due to the tightening policies of financial institutions, full financing for cars is only possible for customers with a credit rating of grade 1. Other customers are finding it nearly impossible to get full financing approved.” In addition, Yujihyun explained, “Customers are also avoiding full financing due to the high interest rates, and we are seeing cancellations of purchases. There is a growing trend toward cash purchases.”
The situation is even worse for the high-interest import car sector. The financing rates offered by the capital companies dealing with import cars are exceeding 10%. A salesperson at an import car dealership lamented, “More customers are delaying purchases due to high interest rates, and it’s becoming unbearable.” Business owners, in particular, are struggling with tight cash flow due to high interest rates, leading to more people postponing their vehicle purchases. Some wait an entire year only to cancel their contracts when interest rates skyrocket at the time of delivery.
What’s even more concerning is that high interest rates are just beginning. The worries among those on the front lines of the automotive market are deepening, pondering how long the cold winds will continue to blow across the car market.
Contact: Lee Sang-jin daedusj@autodiary.kr