As more states begin to open up and pandemic restrictions begin to lift, consumer confidence is also rising to record highs. One important sign? Americans are borrowing again: New auto loan originations, personal loans, and general use credit cards are up 39% this April compared to last year. And the gains aren’t only attributable to the pandemic slump. This year’s borrowing is also up 11% compared to April 2019.
Why the sudden surge in consumer borrowing? The trend is primarily fueled by three factors:
Americans are Flush With Cash
It may seem counterintuitive, but one reason we’re borrowing more is because most Americans did pretty well during the pandemic and are now flush with cash. Between the soaring stock market, pandemic unemployment assistance, and stimulus checks, many Americans found themselves with more ready cash on hand. However, unlike last year when consumers avoided taking on any new debt due to economic instability, this year the landscape looks a lot calmer and more predictable, leading to an uptick in credit card and auto loan applications.
Consumers are Deprivation Spending
After a full year or more of going nowhere, seeing no one, and buying very little, Americans are ready to splurge this summer. As the economy opens back up, consumers are taking once-in-a-lifetime trips, buying RVs and trucks, eating out more, and seeing each other more. Let’s not forget weddings. Thousands and thousands of postponed weddings and wedding parties are also on the schedule this summer. This is a far cry from last year when conservation and inexpensive hobbies like baking and gardening were the name of the game. Overall, people seem more willing to borrow and make big life moments happen on credit.
Financial Institutions are Lending Again
The final factor driving the increase in consumer borrowing is simply access. During the height of the pandemic, many lenders either tightened lending standards or quit offering new auto loans and credit lines altogether. This year, with more personal cash and more corporate capital available, banks are lending again. Another reason for the increased availability of lending: credit card balances are at a 10 year low. Americans largely used their stimulus money and other windfalls to lower their overall debt, decreasing lenders’ interest revenue and motivating them to begin to lend again.
If you’re in the market for a large purchase, now might be a great time to consider financing. Banks and lenders throughout the country are loosening their credit requirements and offering more generous financing terms to lure consumers back to the table and the job market is as booming as it’s ever been. As always, carefully consider the full cost of any purchase and make sure you can afford the financing before taking on new debt.
