Consumer demand for credit cards and personal loans is expected to rebound beginning in the second quarter of next year, according to an analysis by the credit rating agency TransUnion released today. The demand for personal credit is forecast to grow as the economy reopens and jobs return as the covid-19 pandemic recedes.
“At this time, our 2021 projections point to a year that will be more reminiscent of 2019 than the COVID-19-impacted consumer credit market of 2020,” said Matt Komos, vice president of research and consulting at TransUnion.
The TransUnion economic forecast sees the demand for more consumer credit rising rapidly from the worst months of 2021, based on an expectation that jobs will return as vaccines gradually tame the pandemic that put the economy into a tailspin in 2020. For instance, applications for new credit cards fell to a 10-year low of 8.6 million in the second quarter of 2020. TransUnion forecasts a 64% year-over-year increase in new card applications as unemployment falls and GDP growth resumes.
Consumers are expected to remain cautions, however, as economic uncertainty drags on consumer spending through the first half of 2021. TransUnion forecasts cautious spending will drive a decline in cumulative credit card balances from $723B in the third quarter of 2020 to $666B in the third quarter of 2021.
The chief uncertainty in the TransUnion forecast is the number of families with mortgages in forbearance. As measures to stem the spread of covid-19 shutdown the economy, mortgage lenders allowed affected homeowners to temporarily cease making payments without penalty. The vast majority of people (84 percent) who took advantage of forbearance since the pandemic began in March 2020 had already emerged from those programs as of October 2020. , 84% of all accounts that entered forbearance since March 2020 have exited accommodation status. Those who have not are the likeliest to struggle when as forbearance programs are phased out,
“We believe those consumers with accounts still in mortgage forbearance also may be the ones who will find it most difficult to make their monthly payments once accommodation programs end,” Komos said.
The TransUnion forecast anticipates an uptick in auto loans in the first half of 2021, driven by auto loan applications from customers who pose little credit risk. “New auto (loan) originations will shift toward lower risk consumers as auto lenders continue to grapple with the aftermath of the pandemic,” said Satyan Merchant, senior vice president and TransUnion’s auto line of business leader. “However, the forecasted origination activity represents a fairly healthy rebound for the industry given the challenges seen in 2020.”
Overall, TransUnion forecasts demand for loans climbing back toward 2019 the record levels recorded in 2019. “Following historically low delinquency rates in 2020, 2021 rates are expected to inch up as stimulus programs expire and forbearance periods end across mortgages and other products,” said Liz Pagel, senior vice president and TransUnion’s consumer lending line of business leader. “We do not, however, expect delinquency rates to markedly exceed levels seen in the past several years.”