A new policy loan program that lets anyone in the bottom half of credit rankings borrow 1 million won ($700) at an annual rate of 4.5% will launch next year. Borrowers will repay about 10,000 won a month over 10 years, sharply reducing the burden on vulnerable households. But with delinquency on the existing illegal-lending prevention loan program now above 40%, analysts say the government must strengthen post-lending management to keep policy loan programs for low-income borrowers sustainable.
The Financial Services Commission has allocated 300 billion won for the K-Livelihood Protection Loan program in next year's budget, according to financial industry sources on the 12th. The program is an expanded overhaul of the illegal-lending prevention loan operated by the Korea Inclusive Finance Agency.
Under the current illegal-lending prevention loan, applicants must be in the bottom 20% of credit scores and earn no more than 35 million won a year. The K-Livelihood Protection Loan will be open to anyone in the bottom 50% of credit rankings regardless of income or past delinquency. This year, the bottom 50% threshold is a score of 875 at Korea Credit Bureau (KCB) and 889 at NICE Information Service. The program also extends the installment repayment period to as long as 10 years. Repaying 1 million won over a decade works out to just 10,364 won a month in principal and interest.
The aim is to keep vulnerable borrowers who need emergency cash from turning to illegal lenders, but some have raised concerns about the recent rise in delinquency. Data from the office of Rep. Park Jun-tae of the People Power Party shows the delinquency rate on the illegal-lending prevention loan climbed to 43.7% as of the end of August. The rate stood at 11.7% at the end of 2023, then rose to 32.2% in 2024 and 37.8% in 2025 before moving well above 40% this year. Loans overdue by 90 days or more accounted for 77.1% of all delinquent loans.
How much the K-Livelihood Protection Loan improves on those asset-quality indicators is expected to be the key question. The current program lends 1 million won at 12.5% a year, or 9.9% for borrowers given special consideration, with repayment over two years. Because the new program cuts the interest burden to about a third and extends the repayment period by up to five times, officials expect the delinquency rate to improve.
What matters most, observers say, is building a support system that keeps borrowers committed to repayment over the full 10 years and helps them return to normal borrower status. Some level of delinquency is unavoidable given the nature of policy loan programs for low-income borrowers, but a rate well above 40% suggests the policy goal of returning borrowers to the formal financial system is not being met.
In a recent report, the National Assembly Budget Office said that while self-sufficiency outcomes need to be managed alongside delinquency, "it has been confirmed that the Korea Inclusive Finance Agency does not manage long-term delinquency rates, re-delinquency rates or the rate at which borrowers use policy loan programs again." The office added that the agency needs to track whether borrowers use the programs repeatedly and whether they are connected to repayment deferrals or debt restructuring, in order to verify self-sufficiency outcomes rather than simply supplying loans. Financial regulators also plan to link borrowers to non-financial services such as employment and welfare support to help vulnerable households get back on their feet.