According to an analysis published today by the rating agency TransUnion, consumer demand for credit cards and personal loans is expected to recover from the second quarter of next year. Demand for personal loans is expected to rise as the economy reopens and jobs return as the Covid-19 pandemic recedes.
“Currently, our projections for 2021 point to a year that will be more reminiscent of 2019 than the COVID-19-affected consumer credit market of 2020,” said Matt Komos, vice president of research and advice at TransUnion.
TransUnion’s economic forecast assumes that the demand for more consumer credit has been growing rapidly since the worst months of 2021, based on expectations that jobs will return as vaccines broke the pandemic that rocked the economy in 2020, gradually taming credit cards fell to a 10-year low of 8.6 million in the second quarter of 2020. TransUnion is forecasting a 64% increase in new card applications compared to the previous year, as unemployment falls and GDP growth picks up again.
However, consumers are expected to remain cautious as economic uncertainty weighs on consumer spending in the first half of 2021. TransUnion predicts that cautious spending will result in a decrease in accumulated credit card balances from $ 723 billion in the third quarter of 2020 to $ 666 billion in the third quarter of 2021.
The greatest uncertainty in the TransUnion forecast is the number of families with mortgage deferrals. With measures to contain the spread of Covid-19 paralyzed the economy, mortgage lenders allowed affected homeowners to temporarily suspend payments without penalty. The vast majority of those (84 percent) who have exercised the forbearance since the pandemic began in March 2020 had emerged from these programs as early as October 2020. Those who haven’t are most likely to struggle when forbearance programs expire,
“We believe that those consumers with accounts that are still on mortgage deferral may also be the ones who will find it hardest to make their monthly payments once the housing programs are over,” said Komos.
The TransUnion forecast expects an increase in auto loans in the first half of 2021, driven by auto loan applications from customers with low credit risk. “New auto loans (loans) will shift to lower risk consumers as auto lenders continue to grapple with the aftermath of the pandemic,” said Satyan Merchant, senior vice president and head of TransUnion’s auto business. “However, given the challenges in 2020, the forecasted origination activity represents a pretty healthy recovery for the industry.”
Overall, TransUnion predicts that credit demand will decline to the record levels of 2019 by 2019 Liz Pagel, Senior Vice President and Head of TransUnion’s consumer credit division. “However, we do not expect the failure rates to significantly exceed the level of recent years.”