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Consumer Credit Trends
As we look back on 2019, it is clear that consumers have not curbed their appetite for credit and lenders have not been stingy in serving it up. There was growth in most credit sectors such as credit cards, personal loans, and auto loans with the only major lending sector experiencing decline being the mortgage market – and that can mainly be attributed to housing affordability.
According a recent report published by credit reporting agency Trans Union, credit card originations increased almost 3% year-over-year bringing the total number of credit cards circulating to almost 433 million. The average credit card debt per borrower hovered just over $5.500. It is important to note, that this average was calculated based on all households, including those that carry no credit card debt, so the average credit card debt for those in debt is actually much higher.
Personal loan balances grew 19.2% year-over-year to an all-time high of $143 billion. This is almost double the $72 Billion balance recorded just four years ago and the prediction for 2020 is for this number to reach $180 billion. Despite this unprecedented growth, only 3.31% of borrowers were seriously delinquent in the fourth quarter of 2019 which is a record low. Personal loans are the fastest growing segment of consumer credit and this growth is generally attributed to consumers using personal loans for debt consolidation and home improvement. It makes sense that delinquencies in personal loans are low as according to a Trans Union Senior Vice President, Liz Pagel, “personal loans that are used for debt consolidation tend to perform well as consumers gain more control over their finances.
The number of people taking out auto loans increased 1.7% year-over- year with borrowers at either end of the credit spectrum fueling this growth. Borrowers with the best credit (super prime) increased their borrowing by 5.2% while borrowers in the lower credit sector (subprime) increased by 4.4%. The percentage of auto loan borrowers who fell behind was measured at 1.31% which has been a relatively stable percentage for the last two years.
The number of people taking out new mortgages, or mortgage originations, dropped by 13.7% year-over-year to 1.5 million in the fourth quarter of 2018, the latest figures available in the Trans Union report. Although there were less mortgage originations, there were less people falling behind on their existing mortgages. Consumers with serious delinquency fell from 1.74% in the first quarter of 2018 to 1.44% in the first quarter of 2019, which is a historic low. With the rate of home price increases slowing, unemployment being low, wages beginning to rise, and mortgage rates being relatively low, mortgage analysts believe that first-time homebuyers may be poised to enter the market in 2020, which may offset some of the drops in mortgage originations that was seen in 2019.
So, what does this all mean for 2020? According to the experts at Trans Union, who claim that their forecasts have been historically accurate in years past, the U.S. consumer credit market is “set to do well in 2020, buoyed by low unemployment rates, continued growth in GDP (Gross Domestic Product), and high consumer confidence. So, in short, consumers will continue to borrow, which means they will also probably need to continue to rely on debt consolidation loans to manage their debt.