Additional Credit for Liquidity-Constrained Individuals: High-Interest Consumer Credit in Korea

Jung-Wook Kim, Seungyeon Won and Jung-In Kim

Emerging Markets Finance and Trade, 2017, vol. 53, issue 1, 109-127

Abstract: We find that the delinquency probability on formal sector debts of private loan borrowers in Korea increases from 2.4% to 20% in the first year after the borrowing and to 32% in the second year. This increase happens despite private loan borrowers trying to rebuild their financial health by reducing formal sector debts, credit card cash service balances, and credit card purchases during the post-borrowing period. This limits the possibility of moral hazard driving the results. Private loan amounts are positively associated with the delinquency probability after controlling other commonly used variables, suggesting that they contain additional information on the worsening financial situation of an individual.

Date: 2017
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DOI: 10.1080/1540496X.2016.1150835

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