5 Signs that Consumer Lending Services are in Demand Now

After the height of the initial pandemic lockdowns', consumers had to change their spending habits, and many found themselves in desperate need of a loan. Everyday life curveballs were still being thrown at them, and house-hold incomes had either come to a screeching halt, or drastically decreased. This fact can’t be doubted as the household debt in the US climbed to a record-scorching $15.24 trillion over Q3 2021, per the recent statement by the Federal Reserve Bank. Compared to Q2 of 2021, the increase is nearly 2%, or $286 billion. This means, the total household debt balance exceeds 2020 debt by $1.1 trillion.

Now, let’s dig deeper into the topic and discover the actual industry trends that indicate consumers’ increased interest in taking loans, or leveraging the incredibly popular "Buy Now Pay Later" mechanism offered at many retailers & e-commerce point-of-sale.??

Consumers Return to Credit Cards & BNPL Options

In the effort to accumulate their savings, consumers return to their previous spending habits, purchasing more with credit cards & electing to pay for their purchases at a later date utilizing a convenient installment program available at point of purchase such as Affirm , AfterPay , or OpenPay . Brian Shniderman , the CEO of OpenPay recently called it “Instant Credit at the Point of Sale using a closed-end loan. Or, as he calls it, “Buy Now, Pay Smarter”. Flexible options like these are why the BNPL spending saw over $100 Billion in 2021, and demand continued to soar. Credit card balances climbed $17 billion higher since the end of the year’s second quarter. Currently, the total credit balance in the US just topped $800 billion , which is the third increase since the Q1 of 2020.??

Yet, the total credit card balance is far below the level of the Q4 of 2019 and the total loan balance totaled $927 billion. This was primarily due to the fact the US printed $411 Billion in Covid-19 stimulus money which many used to pay down credit card debt.

Mortgages Climb High & Rates Rise

Mortgages remain the household debt’s most significant component defining its total volume. As the US households continue spending more and therefore increasingly ask for loans, mortgages are now at $10.67 trillion, or $230 billion more than in the Q2 2021. We also just witnessed mortgage rates increasing which has caused "panic-refinancing" to occur, in-turn increasing these numbers further. ??

Tuition Debt is Still Enormous

Yes, the student loan pause has been extended but the reality is that student loans continue to threaten consumers’ wealth (particularly Millennials ), even more than mortgages. Due to its high price, an average student debt per consumer peaked in 2020, reaching the previously unseen total of $38,792. Overall, the US had $1.6 trillion in student debt and since that time, the volume of overall student debt rose by another $14 billion.

Auto Loans take Consumers’ Time and Money

In this regard, auto loan debt is another factor that shows how often American consumers take loans. It already makes up to 5% of total consumer debt in the US.

Total Auto-debt in Q4 of 2020 was $1.37 Trillion, a jump of $100 Billion the same time in 2018 and In Q1 2021, Americans owed $1.4 in auto debt. Since then, that figure has increased by $28 billion. Interestingly, the volume of newly taken auto loans is now at $199 billion, which is less than in the Q2 ($202 billion, respectively).

Unprecedented Inflation?

Americans are feeling it, and not just at the gas pump. Inflation continues its mind-boggling “record-high” trends which are not slowing down, and affecting costs in every direction they turn. This inflation is due to many reasons. Poorly managed supply chain breakdowns, the fed printing money at unprecedented amounts to save the economy from covid-19 lockdowns, labor shortages, and rapid consumer spending.

According to the latest report on US inflation, producer prices for demand products, in general, climbed 0.6% over the last month, mostly because energy costs increased. The prices have been moderately growing through the last 12 months and totaled an 8.6% increase over that period.?

For energy and food products, in particular, the price index rose 0.4% since the last month or 6.2% over the last 12 months. At the same time, the price index for “intermediate-demand” products climbed 2.1%, the highest increase since May, mostly conditioned by increased energy costs. Overall, the price index for these products gained 25.4% over 12 months – the record increase since the staggering 26.3% for 12 months as of January 1975.

In Conclusion?

We see that consumers are increasingly borrowing more because of factors such as inflation, high prices, and increased demand for particular goods and services. This is rapidly driving the need for short-term and long-term loans.

This means lenders should take this time to review their current product offerings, and copious amounts of data which has given them valuable insights into what consumers are looking for right now. Lenders should?improve their offering if needed, and zero-in on which loan types to focus on.?

Make sure to personalize your offering for the loan types you provide. The pandemic has affected prices and peoples’ urgent needs, changing how consumers spend money. If you're wondering, now is the right time to compete in the consumer market with competitive, and creative lending options.

Increased lending means increased collections support. If you are interested in piloting our automated cloud-based collections software please reach out.