According to data from TransUnion, credit card debt and personal loans hit record highs in the third quarter of 2022, as consumers face higher costs of goods and services as well as interest rates. higher interest. These trends indicate that consumers are likely turning to credit cards and unsecured personal loans to cover their expenses amid growing financial pressures.

“However, as long as the employment figures remain strong, there should continue to be a constant flow of customers seeking access to new credit products, credit cards and personal loans in particular, and simultaneously an offer abundance of lenders willing to offer them credit,” Michele Raneri, vice president of U.S. research and consulting at TransUnion, said in a statement.

More consumers are gaining access to additional lines of credit and financing as the U.S. job scene remains strong. While the economy added 261,000 jobs in October, the average hourly wage rose 4.7% from a year earlier.

Credit card balances reached $866 billion in the third quarter, up 19% from the same quarter in 2021, according to TransUnion’s Quarterly Credit Industry Insights (CIIR) report. Among Gen Z and Millennial borrowers, credit card balances increased by 72% and 32%, respectively. Private label credit card or store brand card balances increased 7% to $122.1 billion.

Meanwhile, total personal loan balances soared to $210 billion, up 34% from the third quarter of 2021. Much of that growth was fueled by increased lending to borrowers with subprime loans. The total number of personal loans reached 26.4 million, compared to 21.6 million in the second quarter.

Delinquencies for most credit products were comparable to pre-pandemic delinquencies, but they increased last year, especially among subprime borrowers.

High inflation and rising interest rates

Rising costs of goods and services, driven by rising costs for housing, food and gasoline, are helping to squeeze consumer budgets. Consumer prices rose 7.7% year-on-year in October, down from an annual growth rate of 8.2% in September, but well below the rate of inflation Federal Reserve 2% target.

In an attempt to combat high inflation, the Fed regularly raises its benchmark interest rate. It raised its benchmark rate by 0.75% to a target range of 3.75% to 4% in November, making it the sixth rate hike of 2022.

When the Fed rate rises, interest rates on other financial products, such as credit cards and personal loans, often change in sync. For consumers, this means that the cost of financing increases, which can lead to financial stress.

Mortgage Trends

Data from TransUnion also showed that mortgages fell 47% in the second quarter of 2022, compared to the previous year, but were on par with pre-pandemic levels in the second quarter of 2019. ( TransUnion data provides mortgage data one quarter behind.)

As home prices rise, homeowners are taking out fewer mortgages, but more home equity products. The number of mortgage loan issuances for the purchase of a home fell 23% to 1.5 million in the second quarter, while refinancing issuances fell 74% to 425,000. mortgage loans was $345,557, up from $305,140 the previous year.

Loan originations for home equity lines of credit (HELOCs) and home equity loans were up 47% and 43%, respectively, year-over-year.

Auto Loan Trends

The number of new car loans also fell in the second quarter, partly under pressure from a shortage of new vehicles. Creations were down 14.9% from a year earlier and 4.1% from the second quarter of 2019, which predated the pandemic.

Consumer payments rose 13.7% to $679 on new car loans and 16.1% to $517 on used car loans as inflation and rising interest rates drove reduces affordability.

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