Rising credit demand to boost recovery

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October 29 2021
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After months in lockdown, Australian consumers are rushing to make up for lost time with a flurry of credit card, mortgage, personal and car loan applications.

The numbers are beginning to suggest that Australia’s economy couldn’t have asked for better conditions when it comes to rebounding from recent lockdowns.

Data released by Equifax suggested that the first week of NSW’s reopening saw a 33 per cent jump in car loans, a 15 per cent increase in mortgages and a 10 per cent increase in personal loans.

“With international travel soon to reopen, we can expect to see consumer credit demand grow, specifically the use of credit cards to pay for people’s overseas holidays,” Equifax general manager for advisory and solutions Kevin James predicted.

Mr James predicted that these trends will complement the boost in spending that is usually seen during this lead up to the end of the year, hastening Australia’s broader economic recovery.

Notably, BNPL demand dipped 12 per cent during NSW’s first week out of lockdown. However, Mr James expects that this will be temporary as typical holiday spending trends set in.

Overall, Equifax’s latest consumer credit demand index found that consumer credit applications rose 12.8 per cent in the quarter ending September 2021 compared with the September 2020 quarter.

Within that figure, credit card applications remained flat at -0.3 per cent while auto loan applications fell by 4.5 per cent.

However, personal loan applications were up by 20.3 per cent and BNPL applications grew by an impressive 31.4 per cent.

NSW and the ACT were the exceptions when it came to growth for the personal loan sector, with declines of 6.7 per cent and 9.1 per cent, respectively.

That being said, Equifax noted that overall consumer credit demand remains 20.8 per cent below pre-COVID levels.

“Mortgage and BNPL demand have remained strong in and out of lockdowns, but their gains haven’t been enough to offset the drop in other categories of credit,” Mr James explained.

Off the back of strong reopening figures, he expects that a resurgence in credit cards, auto loans and personal loans will begin to close the gap.

Another reason for the boom in credit demand might be related to the improvement in credit scores that

A recent report by ClearScore found that Australians with the lowest credit scores experienced the strongest improvements over the past 12 months.

“The reduction in defaults over the last 12 months of COVID has had a dramatic impact therefore on improving the average credit scores of people who were classified as Poor credit score last year,” the report said.

About the author

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

About the author

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

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