South Korea’s financial regulator warned that a growing form of illegal lending tied to financed and leased vehicles is exposing borrowers to effective annual interest rates of up to 229%, as lenders disguise finance charges as parking fees, service expenses and other ancillary costs.
The Financial Supervisory Service said it had received 12 complaints this year involving lenders that provided cash advances secured by vehicles still under installment financing or lease agreements. Individual loan amounts ranged from about $1,800 to $21,600.
According to the regulator, the schemes often involve upfront deductions and a range of additional charges that, when treated as interest, push borrowing costs far beyond South Korea’s legal lending-rate cap of 20% a year.
Borrowers in their 30s accounted for half of the reported victims, while most cases were concentrated in the Seoul metropolitan area.
The regulator warned that both borrowers and lenders could face criminal liability when financed or leased vehicles are used as collateral without proper authorization. A borrower who transfers possession of a financed vehicle without the consent of the finance company may be accused of concealing or improperly disposing of pledged collateral, authorities said.
Leased vehicles present a separate legal issue because ownership remains with the leasing company, making them ineligible to be pledged as collateral by the lessee.
Authorities said some illegal lenders charged borrowers parking fees, travel expenses and administrative costs to circumvent interest-rate restrictions. In other cases, lenders allegedly used vehicles without authorization and later billed borrowers for tolls and traffic penalties.
The regulator also cited reports of lenders threatening borrowers during debt-collection efforts by claiming they would disclose the unauthorized lending arrangement to finance or leasing companies and pursue legal action.
The Financial Supervisory Service emphasized that even licensed lenders are prohibited from collecting interest above the statutory maximum rate.
The warning highlights regulators’ concerns that illegal lenders are increasingly using disguised fees and unconventional collateral arrangements to evade lending regulations and target consumers facing urgent cash shortages.
