As inflation ramped up in the second quarter of the year, consumers turned to credit cards and personal loans to make ends meet. A new report suggests lenders are happy to help.
TransUnion’s Q2 2022 Quarterly Credit Industry Insights Report shows that the number of consumers using credit cards and personal loans reached record highs, in part because lenders extended credit to more consumers in the subprime category.
Some personal finance experts might see this as a cause for concern during uncertain economic times, but Michele Raneri, TransUnion’s vice president of US research and advisory services, says it’s not necessarily a red flag.
“Consumers face multiple challenges that impact their finances on a daily basis, namely high inflation and rising interest rates,” Raneri said. “However, these challenges are taking place against a backdrop where job opportunities are still plentiful and the unemployment rate remains low.”
Getting a loan for the first time
Raneri says that the fact that lenders are lending to more subprime borrowers — some of whom are borrowing for the first time — is actually a positive development. So far, she says, the data shows no signs of trouble.
“While arrears are generally rising after a period in which more borrowers without prime credit lines are obtaining credit, default rates remain largely at or below pre-pandemic levels, particularly for cards and personal loans,” she noted.
In the second quarter of the year, 161.6 million consumers had access to a credit card, up from 153.3 million a year earlier. 21 million consumers had a personal loan during this period, up from 18.7 million in the second quarter of 2021.
The report shows that many of the new borrowers were among the youngest consumers. Lending to Gen Z consumers grew 31.6% between Q1 2021 and Q1 2022. Total subprime assets grew 51.7% year-on-year, the fastest growth rate ever.
How to find the right loan
Consumers accessing credit for the first time should research both credit cards and personal loans before deciding which one suits their needs. Both are unsecured loans, but interest rates can vary widely. The average credit card interest rate is currently around 20%, but it is much higher for consumers in the subprime category and for those who are new to lending.
The interest rate for personal loans tends to be lower. The interest rate on personal loans could be as high as 6%, but it will be higher for consumers who are taking out a loan for the first time. Still, the interest rate on personal loans is usually lower than that on credit cards.
The ConsumerAffairs Best Credit Cards guide breaks down cards for different uses and different credit ratings. There are also thousands of verified reviews.
Our Best Personal Loans guide provides hundreds of verified reviews of personal lenders and explains how they work. For example, personal loans are structured more like traditional loans than revolving loans with set repayment terms.