The proportion of borrowers who are unable to repay their government-supported loans, known as Sunshine Loans, for low-income individuals with low credit ratings, is rapidly increasing, particularly among those in their 20s.

The amount of loans that the government has repaid on behalf of borrowers has surged by about 210 billion won ($160 million) in the first quarter of this year alone, reaching a cumulative total of 3 trillion won.

According to data from the Korea Inclusive Finance Agency on Tuesday, the cumulative amount of government repayment for major sunshine loan products stood at 2.81 trillion won in the first quarter. Borrowers obtain sunshine loans from commercial and savings banks through guarantees provided by the agency. If a borrower who has taken out the loan fails to repay the principal and interest, the agency repays the loan on behalf of the borrower and then claim subrogation rights against the borrower. Subrogation typically occurs after three months of delinquency.

The cumulative amount of government repayment for major sunshine loan products was 1.37 trillion won at the end of 2020. However, it has increased by an average of over 600 billion won annually since then, reaching 2.6 trillion won at the end of last year. The pace of increase in such subrogation is accelerating, with 210 billion won added in just three months since the beginning of this year.

In particular, the default rate for Sunshine Loan Youth, which targets individuals aged 19 to 34, is increasing at a faster pace. Sunshine Loan Youth, launched in January 2020, had an initial default rate of only 0.2 percent in its first year. However, it sharply rose to 2.9 percent in 2021 and 4.8 percent in 2022. In the first quarter, the default rate reached 5.5 percent and the cumulative amount of subrogation for Sunshine Loan Youth came to 52.7 billion won.

While the number of sunshine loan borrowers eligible for subrogation is increasing significantly each year, the default rate for Sunshine Loan Youth, especially among those in their 20s and 30s, is rising at the fastest clip. The number of borrowers in their 20s for such subrogation doubled to 41,274 at the end of last year from 20,330 in 2020. In the first quarter, the number stood at 13,677, accounting for 37 percent of the total across all age groups.

By Myung Ji-ye and Minu Kim

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