Consumer Demand for Loans Surges
Consumers Are in the Mood to Borrow Again
Borrowing is heating up again with demand for car loans and leases, credit cards, and personal loans surging. In April loan demand jumped 39% year-over-year and was up 11% compared to April 2019.
This is a stark reversal from a year ago when expanded unemployment benefits and government stimulus checks increased the balances in many consumers’ bank accounts. There was also little incentive to purchase or lease a new vehicle or borrow for an expensive trip during the pandemic. With vaccinations widely available and the economy reopening, consumers are spending again. As a result, demand for loans is climbing.
Lenders Ramp Up Offerings
Lenders have responded to the borrowing trend by ramping up their offerings. Banks tightened their underwriting standards during the pandemic, but some are relaxing those requirements as the economy improves.
The most recent data available is from March when lenders originated 53% more auto leases year-over-year. The balances on new auto loans reached $73.6 billion—up 59% from last year.
Meanwhile, close to six million new credit cards were issued in March—a 32% increase year-over-year. Credit card companies are betting that more originations will lead to additional people carrying a balance on their cards.
Will the Borrowing Trend Continue?
Credit card companies are betting that demand for borrowing will stay strong. This may prove true if recent data are any indication. Customer spending on credit cards at JPMorgan Chase (JPM) was up 17% in May compared to 2019. The bank expects that trend to continue through 2021.
Meanwhile, lenders are issuing more loans to subprime borrowers, which increases the odds of people carrying a balance. About 1.4 million credit cards were issued to subprime borrowers in March alone. That is a 28% year-over-year increase. With stimulus checks drying up and balances on credit cards growing, demand for loans is expected to remain heightened for the next one or two years at least.
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