Balances on Credit Cards, Personal Loans Hit Record Highs

Credit card and personal loan debt reached record levels in the third quarter of 2022, as consumers face higher prices for goods and services and higher interest rates, according to TransUnion data. These trends indicate that consumers are likely to turn to credit cards and unsecured personal loans as a way to cover their expenses despite mounting financial pressures.

“However, as long as employment remains strong, there will continue to be an influx of customers seeking access to new credit products, credit cards and personal loans, and at the same time, those who -full credit lenders are looking to give them credit,” Michele Raneri, vice president of U.S. research and consulting at TransUnion, said in a statement.

Many consumers are also getting additional lines of credit and financing as the US employment situation remains strong. As the economy added 261,000 jobs in October, average hourly earnings increased 4.7% from a year ago.

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Credit card transactions 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 borrowers and millennials, credit card balances increased 72% and 32%, respectively. Sales for personal brand credit cards, or store brand cards, rose 7% to $122.1 billion.

Meanwhile, total personal loans rose to $210 billion, up 34% from the third quarter in 2021. Most of that growth came from an increase in lending to subprime lenders. The number of personal loans reached 26.4 million, from 21.6 million in the second quarter.

Fraud for many credit products was similar to violations before the pandemic, however they have been on the rise in the past year, especially among lenders.

High inflation and rising interest rates

Rising prices of goods and services, driven by higher prices for housing, food, and fuel, contribute to consumer spending. Consumer prices rose 7.7% annually in October, down from an annual growth rate of 8.2% in September, but well ahead of the Federal Reserve’s 2% inflation rate.

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To try to combat high prices, the Fed increases interest rates all the time. 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 Fed rates increase, interest rates on other financial products, such as credit cards and personal loans, often change in correlation. For consumers, this means higher inflation, which can lead to financial problems.

Types of remittances

TransUnion data also showed that the start of deliveries fell 47% in the second quarter of 2022, compared to a year ago, although they corresponded to pre-pandemic levels in the second quarter of 2019. ( TransUnion data provides preliminary data quarterly installments. in debt.)

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As home prices rise, homeowners are taking out fewer mortgages but mortgage products. The number of mortgage originations for home purchases declined 23% to 1.5 million in the second quarter, while originations for mortgages declined 74% to 425,000. The average balance on new mortgages was $345,557, up from $305,140 a year ago.

Loans for home equity lines of credit (HELOCs) and home equity loans increased 47% and 43% year over year, respectively.

Auto Loan Types

The number of new car leases also fell in the second quarter, pressured in part by a shortage of new cars. Sources are down 14.9% from last year, and down 4.1% compared to the second quarter in 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 increases in interest rates have reduced capacity.

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