Credit card and personal loans hit record highs in the third quarter of 2022, as consumers face higher prices for goods and services as well as interest rates interest, according to TransUnion data. These trends indicate that consumers may be turning to credit cards and unsecured personal loans as a way to cover expenses under increasing financial pressure.
“However, as long as employment numbers remain strong, there should be a steady flow of customers looking for new products, credit cards and personal loans, and at the same time, an ample supply of lenders.” -money willing to lend to them,” said Michele Raneri, vice president of U.S. research and consulting at TransUnion, in a statement.
More consumers are gaining access to additional lines of credit and financing as the U.S. labor market remains strong. While the economy added 261,000 jobs in October, average hourly wages increased 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. Balances for private label credit cards, or cards with store brands, rose 7% to $122.1 billion.
Meanwhile, total personal loan balances rose to $210 billion, up 34% from the third quarter of 2021. Most of that growth was driven by loan growth -finance for low credit borrowers. Total personal loans reached 26.4 million, compared to 21.6 million in the second quarter.
Delinquencies for most loan products were similar to pre-pandemic delinquencies, however they increased last year, especially among those subprime lender.
Inflation and rising interest rates
Rising prices for goods and services, driven by higher prices for housing, food and gasoline, are contributing to tighter consumer budgets. Consumer prices rose 7.7% year-on-year in October, down from an annual rate of 8.2% in September, but far from the Fed’s rate of inflation. Reserve at 2%.
To try to combat inflation, the Fed has been steadily increasing interest rates. It raised the benchmark rate by 0.75% to a target range of 3.75% to 4% in November, making it the sixth hike in 2022.
When the Fed rate increases, interest rates on other financial products, such as credit cards and personal loans, often change. For consumers, this means higher financing costs that can lead to financial difficulties.
TransUnion data also showed that loan originations fell 47% in the second quarter of 2022, compared to a year earlier, although they were at the same level as they were pre-pandemic in the second quarter of 2019. backwards.)
Due to rising home prices, there are fewer home owner loans but more financial products. Home loan originations fell 23% to 1.5 million in the second quarter, while home equity originations fell 74% to 425,000. The average new loan was $345,557, up from $305,140 a year earlier.
Home equity loans (HELOCs) and home equity loans grew 47% and 43% year over year, respectively.
Car loan trends
The number of new loans also fell in the second quarter, due to a lack of new vehicles. The start was down 14.9% compared to the previous year, and down 4.1% compared to the second quarter of 2019, which was before the pandemic.
Consumer payments increased 13.7% to $679 on new car loans and 16.1% to $517 on used car loans as inflation and interest rates rose. interest has reduced the price.