The number of vulnerable borrowers seeking debt restructuring after taking out auto-backed loans is surging as an economic slowdown compounds tightened household lending regulations.
Data submitted by the Credit Recovery Committee to the office of Rep. Kim Sang-hoon of the People Power Party, a member of the National Assembly's Political Affairs Committee, showed that 1,284 borrowers with auto-backed loans had their debt restructuring confirmed in the January-March period this year. That figure amounts to 58.8% of the 2,185 cases recorded for all of 2024. At this pace, the full-year 2024 total is projected to be surpassed within the first half of this year.
The increase is even steeper in monetary terms. The outstanding principal on auto-backed loans among confirmed debt restructuring cases in the first quarter reached 41.03 billion won ($30 million), or 68.8% of last year's 59.7 billion won.
The number of auto-backed loan debt restructuring cases has been rising year after year. From just 61 cases (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 the launch of the Fresh Start Fund in 2022 led to more debt restructurings of auto-backed loans held by small business owners.
Industry observers call the trend "an indicator that reflects the deteriorating state of household finances among ordinary citizens." Auto-backed loans, primarily handled by savings banks and capital companies, are considered the last resort for low-credit borrowers in the secondary financial sector. Many such products allow borrowers to receive credit-score-based personal loans on top of the vehicle collateral value, leading to frequent cases of borrowers maxing out their available limits through auto-backed lending.
The surge in debt restructuring has also been attributed to a rush of demand into auto-backed loans — a regulatory blind spot — following the June 27 measures last year that capped unsecured personal loan limits at 100% of annual income. An official at a savings bank said, "Auto-backed loans are a product frequently used by borrowers who have reached their borrowing limits." The official added, "Unlike small loans capped at 5 million won, auto-backed loans can go up to 100 million won, which is another reason customers seek them out."
A growing number of construction equipment operators are also struggling to repay loans secured against excavators, dump trucks and other machinery. According to data the Credit Recovery Committee submitted to Rep. Kim's office, the pre-restructuring principal on construction equipment-backed loans (excavators, dump trucks, rollers and others) among confirmed debt restructuring cases in January-March this year reached 1.056 billion won. That means the figure already surpassed half of last year's full-year total of 2.4 billion won in just one quarter.
An official at a major capital firm said, "Demand for construction equipment-backed loans has been increasing recently." The official added, "With the construction sector generally weak and oil prices rising sharply due to the Iran conflict, management difficulties are likely to intensify for the time being, potentially pushing up delinquency rates."
Rising distress among marginal borrowers is visible beyond auto loans alone. According to NICE Investors Service, delinquency rates on household loans and individual business loans at major capital firms stood at 3.0% and 3.3%, respectively, at the end of last year. After falling to 1.9% and 0.9% at the end of 2021, both rates have climbed steadily and remained above the 3% line for several years. Given that individual business loan delinquency rates had historically run about 1.0 percentage point below household loan rates, the reversal suggests that the domestic consumption slump is inflicting serious damage on self-employed business owners.
With geopolitical instability in the Middle East pushing up consumer prices and lending rates broadly, calls are growing for a thorough review of the state of consumer finance for ordinary citizens. Rep. Kim said, "Signals that marginal borrowers are increasing amid the rising market interest rate trend that began in the second half of last year are becoming increasingly clear." He added, "We must also review the policy support framework to ensure that vulnerable borrowers are not driven into illegal private lending."