Experts from smslansnabb.se claim that in 2023, U.S. consumers are expected to fall behind on their payments for personal loans and credit cards at rates not seen since 2010. This will result from consumers taking on a record amount of new credit in 2022, with 87.5 million new credit cards and 22.1 million personal loans being taken out due to Statista data.
Financial Challenges For Consumers
Consumers in the U.S. are facing various financial challenges. These include high-interest rates, high inflation, and fears of a recession. Many private financial services offer the best interest rate on a consumer credit. The Federal Reserve aggressively increased interest rates to combat inflation. And this most probably will continue to go on, leading lenders to implement tougher borrower standards.
- Delinquencies for unsecured consumer or personal loans are also expected to increase from 4.1 percent to 4.3 percent simultaneously.
- And for car loans, borrowers who are a couple of months or more past due, their percentage is expected to climb over 1.9 percent in Q4 2023 before dropping to 1.9 percent by the end of the year. While the demand for cars is expected to remain strong, the inventory shortage may ease.
- The rising interest rates are also likely to affect the housing market, with just over four million mortgages projected to be issued in 2023 compared to eight million in 2021.
What Caused It?
The Federal Reserve increased the benchmark rate 7 times in 2022 and added another increase in January 2023. It took the overnight borrowing rate to a 4.5 to 4.75 percent target range.
This included 4 consecutive increases of 3 quarters of a single percentage point. And it led to higher rates for different personal debt instruments. These include mortgages, credit cards, and car loans.
According to the study by smslansnabb.se, while credit card originations are likely to decrease in 2023, the delinquency rate could rise to 2.6 percent by the end of the year from 2.1 percent by the end of 2022.
The Federal Reserve’s rate-hiking campaign during 2022 was to combat inflation and the resulting increase in rates for consumer debt instruments. These include the likes of such as credit cards, mortgages, and auto loans, which have further contributed to the situation.
There is a projected surge in delinquencies for personal loans and credit card payments in 2023. It could pose significant challenges for U.S. consumers. The aggressive rate-hiking campaign by the Federal Reserve and high inflation have added to the financial burden on consumers.
The demand for cars is expected to remain strong. But despite the possibility of ease in an inventory shortage, rising interest rates will likely affect the housing market.
There is a projected increase in delinquencies for unsecured personal loans and credit cards. It highlights the need for consumers to manage their finances and debts carefully. Lenders may also need to implement stricter standards to manage their risk in this environment.
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