Financial authorities on Sunday unveiled a plan to encourage banks and other financial institutions to provide mid-rate loans to low-income people and non-prime borrowers.

Mid-rate loans are not clearly defined, but such loans refer to credit loans with an interest rate of some 10 percent for people with middle credit scores, according to the Financial Services Commission (FSC).

Under the plan, about 2 million people with middle credit ratings are expected to take out a total of 32 trillion won ($28.6 billion) in loans this year, FSC officials said.

At the end of last year, the value of outstanding mid-rate loans stood at 14.7 trillion won, the FSC said.

The plan comes as the government is set to lower the maximum interest rate in July as part of efforts to ease financial burdens on low-income people.

The maximum legal interest rate that private lenders can charge will be cut to 20 percent from the current 24 percent starting July 7.

It will be the second reduction in the maximum legal interest rate in three years. In 2018, the government lowered the lending rate ceiling to 24 percent from 27.9 percent.

The FSC said it will come up with follow-up measures to prevent any fallout from the planned lending rate cut on borrowers with low credit ratings. (Yonhap)