Consumer credit arrears rise as signs of financial strain increase

Equifax Quarterly Consumer Credit Insights: March 2023

• Unsecured consumer credit applications increased (+7.5% vs March quarter 2022)
  • Credit card applications grew (+20.9% vs March quarter 2022)
  • Personal loan applications up (+4.2% vs March quarter 2022)
  • Buy now pay later applications declined (-2.4% vs March quarter 2022)

• Secured consumer credit applications declined (-11.1% vs March quarter 2022)
  • Mortgage applications declined (-11.1% vs March quarter 2022)
  • Auto loan applications reduced (-10.6% vs March quarter 2022)

SYDNEY – April 2023 – Consumer credit arrears are rising across multiple portfolios according to  the latest Equifax Quarterly Consumer Credit Insights - March 2023 (formerly Consumer Credit Demand Index), as more consumers feel the strain of compounding economic pressures.

Released today by Equifax, the global data, analytics and technology company and leading provider of credit information and analysis in Australia and New Zealand, the Index measures the volume of credit applications for credit cards, personal loans, buy now pay later, mortgages and auto loans.

Unsecured credit demand, comprising credit cards, personal loans and buy now pay later, increased +7.5% in the March quarter. Credit card demand was the primary driver of unsecured credit growth, up +20.9% in Q1 2023 versus the same period 2022. Personal loan applications also increased, up +4.2%, while demand for BNPL continued to decline (-2.4%).

Kevin James, General Manager Advisory and Solutions, Equifax, said: “Personal loan limits increased in the March quarter, with new limits up 11% compared to Q1 last year. However, as demand for personal loans grows, so do arrears, which are now back at pre-pandemic levels. This suggests consumers are taking on more credit that they are then struggling to repay. 

“Credit card account limits are also increasing, with limits on new accounts up 55% compared to last year. And while credit card arrears are stable compared to Q1 2022, we have seen marginal growth in arrears over the past three quarters, which may be a precursor to a future increase in credit card arrears,” Mr James said.

Secured credit demand, derived from mortgages and auto loans, decreased -11.1% in Q1 2023 compared to the same period in 2022, driven by a fall in demand across both portfolios  (mortgages -11.1%; auto loans -10.6%).

“We are seeing clear signals that the cost of living and interest rate rises are impacting consumers, with arrears increasing for mortgage and auto loans.

“Both mortgage and auto loan arrears have risen to their highest level in two years, with substantial growth in arrears of less than 90 days past due. Growth in the earlier delinquency categories (>90 DPD) indicate arrears are expected to rise further in the coming months,” Mr James added. 

IMAGE 1: Consumer Macro Credit Demand – Quarterly YOY

Source: Equifax

IMAGE 2: Consumer Credit Applications – By Type (Indexed to Nov 2019)

Source: Equifax

^The data has been re-indexed from 2018 to account for the recent inclusion of Buy Now Pay Later applications:
Re-indexed data to commence in 2018 (previously 2015)
Added buy now pay later and auto loan credit enquiries as a separate trendline (previously rolled up into personal loans)

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NOTE TO EDITORS
The Quarterly Consumer Credit Demand Index by Equifax measures the volume of credit card, personal loan applications, Buy Now Pay Later and auto loan applications that go through the Equifax Consumer Credit Bureau by financial services credit providers in Australia. Credit applications represent an intention by consumers to acquire credit and in turn spend; therefore, the index is a lead indicator. This differs to other market measures published by the RBA which measure credit provided by financial institutions (i.e. balances outstanding).

DISCLAIMER
Purpose of Equifax media releases:
The information in this release does not constitute legal, accounting or other professional financial advice. The information may change, and Equifax does not guarantee its currency or accuracy. To the extent permitted by law, Equifax specifically excludes all liability or responsibility for any loss or damage arising out of reliance on information in this release and the data in this report, including any consequential or indirect loss, loss of profit, loss of revenue or loss of business opportunity.