Record Share of Credit Loans for Living Expenses Among Bottom 20% by Assets and Income... Vulnerable Groups "Survive on Debt"

Among low-income and financially vulnerable households in the bottom 20% by assets and income, the share of credit loans taken out to cover living expenses—so-called “livelihood loans”—has reached a record high in both groups. Because credit loans carry higher interest rates than secured loans, sharply increasing the debt burden on vulnerable borrowers when rates rise, calls are growing for urgent policy support to reduce their reliance on credit loans for basic living expenses.

A banner listing loan interest rates hangs on the exterior of a commercial bank in Seoul on the 23rd, as domestic market rates and bank lending rates have recently risen rapidly. Photo by Kang Jinhyeong aymsdream@

Nearly Half of Bottom 20% by Assets Borrow for Living Expenses... Record High for Bottom Income Quintile, Too

According to the National Statistics Portal (KOSIS) of the Ministry of Data and Statistics on Nov. 2, a survey of the purposes of credit loans among the bottom 20% by assets, or the first quintile, in 2025 found that “covering living expenses” accounted for the largest share, at 45.3%. This was the highest level since the relevant statistics were first compiled in 2017. The share edged down from 33.4% in 2017 to 33.1% in 2019, but first topped 40% in 2021, reaching 41.9%, and continued to rise for the second consecutive year.

Credit loans taken out to cover living expenses also accounted for the largest share of all loan purposes among the second asset quintile (32.5%) and the third quintile (27.3%). The figure for the second quintile was its highest since 2020 (32.5%), while that for the third quintile was its highest since 2019 (28.8%). By contrast, “raising business funds” ranked first among the fourth asset quintile, at 29.7%, followed by living expenses at 23.1%. Among the top 20% by assets, or the fifth quintile, the share for living expenses fell sharply to 15.1%, below the shares for raising business funds (34.0%), purchasing real estate other than a home to live in (16.8%), and other purposes (16.8%).

The picture was similar among lower-income groups. In 2025, credit loans taken out to cover living expenses accounted for 38.2% of all loan purposes among the bottom 20% by income, or the first quintile, the largest share and a record high. This was well above the previous record of 34.5% in 2024. The share for covering living expenses among the second income quintile was also the highest since 2017, at 32.2%, ranking first among all loan purposes. By contrast, among the third through fifth income quintiles, loans for raising business funds accounted for a larger share than loans for living expenses.

High-Interest Credit Loans Become a Debt Trap... Risk of Being Driven to Illegal Lenders

Because credit loans are not backed by collateral, financial institutions face a greater risk of being unable to recover the debt, so they charge higher interest rates than on secured loans. In particular, during periods of rising interest rates like the current one, the interest repayment burden on credit-loan borrowers inevitably grows much faster than that on borrowers with secured loans. Moreover, vulnerable households with fewer assets and lower incomes have higher default rates and are charged rates above the average. Vulnerable borrowers who take out high-interest credit loans to cover immediate living expenses may fall into a cycle of multiple debts, taking out new loans to repay existing ones. They also face a significant risk of being driven to illegal private lenders if they can no longer borrow from regulated financial institutions.

On the 23rd, as domestic market interest rates and bank lending rates rise rapidly, a banner listing loan rates hangs on the exterior wall of a commercial bank in Seoul. Photo by Kang Jinhyung aymsdream@

"Reduce Reliance on Individual Financial Institutions and Expand Direct Government Support and Guarantees"

Experts stress that livelihood loans for vulnerable households should not be left solely to the market and that the public safety net must be substantially strengthened. Yang Junseok, a professor at the Catholic University of Korea, said, “There is an unavoidable aspect to vulnerable households borrowing money for living expenses.” He added, “When interest rates rise, it becomes even harder for vulnerable borrowers to repay their debts, while financial institutions that lend to them will see an increase in nonperforming loans.” He continued, “Rather than having vulnerable households rely on loans from financial institutions on an individual basis, the government should provide direct support.” He added, “If that would require too much public spending, the government should at least explore ways to strengthen guarantees for loans to ordinary citizens.”

This content was produced with the assistance of AI translation services.