The number of borrowers seeking debt restructuring after taking out auto-collateralized loans is surging as an economic slowdown compounds with household lending regulations, data showed. Analysts warn that consumer finances are taking an additional hit as market interest rates climb amid inflation concerns surrounding the U.S.-Iran conflict.

Data submitted by the Credit Recovery Commission to the office of Rep. Kim Sang-hoon of the People Power Party on the National Assembly's Political Affairs Committee showed that 1,284 borrowers with auto-collateralized loans were confirmed for debt restructuring in the first three months of this year. The figure already represents 58.8% of the 2,185 full-year total for last year, approaching 60%. At this pace, the number is projected to surpass last year's total within the first half of the year.

"Auto-collateralized loan debt restructuring does not show seasonality concentrated around year-end or the start of the year," a Credit Recovery Commission official said. "We are closely monitoring the sharp increase in auto-collateralized loan debt restructuring this year."

The increase is even steeper in dollar terms. The outstanding principal on auto-collateralized loans among borrowers confirmed for debt restructuring in the first quarter totaled 41.03 billion won ($29.9 million), representing 68.8% of last year's full-year figure of 59.7 billion won.

The number of auto-collateralized loan debt restructuring cases has been rising every year. From just 61 borrowers (480 million won in principal) in 2021, the figure expanded to 465 (10.3 billion won) in 2023, 850 (19 billion won) in 2024 and 2,185 (59.7 billion won) in 2025, as debt restructuring for auto-collateralized loans held by small business owners increased following the launch of the Fresh Start Fund in 2022.

Industry observers call the trend "an indicator that reflects the deteriorating state of the working-class economy." Auto-collateralized loans, primarily handled by savings banks and capital companies, are often used by low-credit borrowers as a last resort for financing from the secondary financial sector. Many such products allow borrowers to obtain additional credit-based loans on top of the vehicle's collateral value, meaning a significant number of borrowers use auto-collateralized loans to maximize their borrowing limits, industry sources explained.

The surge in demand for auto-collateralized loans after the government's "June 27 measures" last year — which capped unsecured personal loan limits at 100% of annual income — also contributed to the recent rise in debt restructuring, as these loans fell outside the regulatory scope, analysts said. "Auto-collateralized loans are a product frequently used by borrowers who have reached their limits," a savings bank official said. "Unlike small loans capped at 5 million won, these loans allow borrowing up to 100 million won, which is another reason customers seek them out."

The number of construction equipment operators struggling to repay loans backed by excavators and dump trucks is also growing. According to data the Credit Recovery Commission submitted to Rep. Kim's office, the pre-restructuring principal on construction equipment (excavators, dump trucks, rollers, etc.) collateralized loans among borrowers confirmed for debt restructuring in the first quarter of this year reached 1.056 billion won. That already surpassed half of last year's full-year total of 2.4 billion won in just one quarter. "Demand for construction equipment-backed loans has been increasing recently," an official at a major capital company said. "With the overall construction sector already struggling, oil prices surging sharply due to the Iran conflict are likely to compound business difficulties and push delinquency rates higher for some time."

There are more signs that the number of marginal borrowers is growing amid the economic slowdown and rising market rates. According to NICE Investors Service, delinquency rates on household loans and individual business loans at major capital companies stood at 3.0% and 3.3%, respectively, as of end of last year. Both figures have remained around the 3% level for several years.

Market observers say the realities of consumer finance need close scrutiny as prices and lending rates broadly rise due to geopolitical instability in the Middle East. "Signals that the number of marginal borrowers is increasing have become clear amid the upward trend in market rates that began in the second half of last year," Rep. Kim said. "We must also review the policy support framework to ensure vulnerable borrowers are not driven to illegal private lending."