In South Korea, lending money to a private individual is legal as long as the rate stays below the 20% annual ceiling set by the Interest Limitation Act, a signed written agreement exists and the interest received is declared to the tax authority.
The 20% cap under the Interest Limitation Act
Since 7 July 2021, the maximum legal rate has been 20% a year, down from 24% before. The Interest Limitation Act also covers private loans: any excess interest has no legal effect and the borrower can claim it back.
The chayongjeung, Korea's acknowledgement of debt
The basic document is the chayongjeung, a signed IOU listing names, ID numbers, the amount in won, the rate, due dates and late penalties. Our loan agreement template between individuals covers these headings, to be adapted with a Korean legal adviser.
A Korean notarial deed as an enforceable title
For a large sum, the parties can have an authentic loan deed drawn up by a Korean notary, known as gongjeung. If the borrower defaults, this deed allows seizure without a full trial, protecting the lender and clarifying the borrower's obligations.
P2P platforms since the August 2020 law
The Online Investment-Linked Financial Business Act, in force since 27 August 2020, requires P2P platforms to hold minimum capital and register with the Financial Services Commission (FSC). Investors' funds stay with approved custodians rather than with the operator itself.
Checking P2P operators one by one
8Percent and PeopleFund are among the better-known Korean P2P operators, but a registration can be withdrawn. Before investing, consult the official list of the FSC and the Financial Supervisory Service (FSS), then compare with our guide to peer-to-peer lending websites.
Registered daebu lenders and illegal private finance
Money-lending companies, known as daebu, register with their city or province, or with the FSC for the largest ones. An unregistered so-called private lender who lends on a regular basis is engaged in illegal finance, pursued by the FSS and the police.
Tax: 27.5% withheld on private interest
Interest from a non-business loan between individuals is taxed as non-commercial lending income: 25% withholding, plus a local tax equal to 10% of that amount, making 27.5% in total. The National Tax Service (NTS) explains how to file the return.
Loans to children and National Tax Service checks
Between parents and children, a loan with no interest and no schedule may be reclassified as a gift, especially for a property purchase or a jeonse deposit. Traceable transfers, regular repayments and a dated contract prove otherwise, as with any loan between friends or family.
Voice phishing and fake refinancing offers
The most widespread fraud is voice phishing: a fake employee of a bank, savings bank or the Korea Asset Management Corporation offers low-rate refinancing, then demands fees or the installation of an app that hijacks the victim's phone.
KakaoTalk messages and fake private lenders
Loan offers sent through KakaoTalk, text message or social media by supposedly generous individuals are a warning sign. The pattern matches our page on loan scams on social media: fees are always demanded before any money arrives.
Reporting a loan scam: 112 and 1332
If you are defrauded, call the police on 112 and immediately ask your bank to freeze the recipient account. The FSS call centre, reachable on 1332, also takes reports of illegal lending and voice phishing and directs victims to help.
Where to find free advice in South Korea
The Korea Legal Aid Corporation provides legal aid to low-income households, the Credit Counseling and Recovery Service supports over-indebted people and the Korea Consumer Agency handles consumer disputes. Foreign residents can call 1345, the immigration multilingual information centre.
Steps for a private loan that complies with Korean law
- Check the other party's identity with their Korean ID card or alien registration card, and meet them in person.
- Set an annual rate below 20%, including all ancillary fees, and calculate the total cost in won.
- Draw up a chayongjeung in two signed copies, with a schedule, reasonable late penalties and full contact details of both parties.
- For a large amount, have the deed certified by a Korean notary so you hold an enforceable title.
- Transfer the funds between Korean bank accounts, never in cash or cryptocurrency, and keep the statement.
- Declare the interest received and pay the withholding tax to the NTS, confirming deadlines with a tax adviser.
Rates, taxes and fees of a private loan in South Korea
| Item | Amount or rate (indicative) | Good to know |
|---|---|---|
| Interest rate between individuals | 20% a year at most | Legal cap since July 2021; any excess has no effect |
| Registered P2P platform | Fees vary by operator | Same legal cap; check FSC registration |
| Notarial deed (gongjeung) | Varies with the amount | Ask the notary for a quote before signing |
| Tax on interest received | 27.5% (25% + local tax) | Non-commercial loan regime between individuals |
| Fees demanded by a fake lender | Probable total loss | No legitimate lender charges upfront fees |
Documents to prepare for a loan in South Korea
- Korean ID card or alien registration card
- Signed and dated chayongjeung or loan agreement
- Seal certificate (ingam) if an official seal is used
- Borrower's proof of income
- Repayment schedule in won
- Bank statement proving the transfer of funds
Common mistakes and fraud signals in Korea
- Paying application fees, insurance or a deposit before receiving the funds: this is the classic low-rate loan fraud pattern.
- Installing an app sent by text or KakaoTalk link at the request of a so-called adviser: it can redirect your calls to the fraudsters.
- Accepting a rate above 20% or penalties disguised as fees, which often reveals an illegal lender and abusive debt collection.
- Handing over your bank card, passbook or phone as collateral: these payment tools are then used to move fraud proceeds.
- Lending to a relative with nothing in writing and no traceable transfer, which hampers recovery and risks reclassification as a gift.
Your questions on peer-to-peer loans in South Korea
Can a foreigner living in South Korea lend to a Korean?
Yes, private lending is not reserved for nationals. A foreign lender follows the same 20% cap, signs a written agreement and declares the interest. A transfer of funds from abroad may fall under foreign exchange rules, so ask your bank before any large transfer.
What happens if the agreed rate exceeds 20% a year?
The portion of interest above the cap has no legal value. If the borrower has already paid it, they can ask for it back or offset it against the capital. A lender who charges such rates repeatedly may also face prosecution.
Are Korean P2P platforms guaranteed by the state?
No. FSC registration imposes disclosure and fund safekeeping rules, but the investor bears the risk of borrower default. No public guarantee comparable to bank deposit protection covers these investments, so diversify and read the information sheet for each product.
Do you have to go to a Korean notary?
No, a signed written agreement is enough to prove the loan. A notarial deed is a safety choice that makes the debt enforceable. Be wary, however, of any notary introduced by a stranger online who asks for fees: it is a common scam scenario.