A recent study by Transunion, one of the biggest consumer credit rating agencies, predicts that more Americans will fall behind on their loan payments in 2023. This rise in delinquencies is occurring across a wide range of loan types – credit cards, unsecured personal loans, and auto loans – as consumer demand continues to stay strong despite rising prices.
- A recent study by Transunion, predicts that more Americans will fall behind on their loan payments in 2023.
- At the moment, 2.1% of people who own a credit card are behind on their payments, but Transunion predicts that this number will rise to 2.6% by the end of 2023.
- This rise has been caused by increased prices and higher interest rates, but also increased confidence in the economy.
Loan Delinquencies on the Rise
Transunion’s Q3 2022 report predicts that by 2023 more Americans will be behind on their loan payments than at any time since 2010. At the moment, 2.1% of people who own a credit card are behind on their payments, but Transunions predict that this number will rise to 2.6% by the end of 2023.
There are a number of reasons why delinquencies are on the rise. One is that many people took out credit in the last year. In fact, demand for credit is surging: Americans opened a record 35 million new credit card accounts and 2.7 million new personal loans in 2022.
Unfortunately, economic conditions have changed since early 2021. American consumers are now faced with sky-high inflation and high interest rates. A combination of these factors means that loans that seemed sensible in early 2021 are now proving difficult to pay back for many borrowers.
That’s true across a wide range of loan types. Over the same period as credit card delinquencies will rise from 2.1% to 2.6%, delinquencies on unsecured personal loans will likely increase to 4.3% from 4.1%, and the percentage of borrowers who are behind on their auto loans are also predicted to climb to 1.95% at the beginning of 2023.
Both Confidence and Debt are Increasing
At first glance, rising delinquencies might suggest that consumers are struggling with their finances. However, the same Transunion study also found that there is widespread optimism about the US economy.
In the study, more than half of the 2,800 Americans polled were optimistic about their finances for the next 12 months, TransUnion said. The youngest generations expressed the most confidence.
This optimism may go some way to explaining the explosion in personal debt over the past year. During 2022, households increased debt at the fastest pace in 15 years due to hefty increases in credit card usage and mortgage balances. Total credit card balances collectively rose more than 15% from the same period in 2021, the largest annual jump in more than 20 years, according to the New York Fed.
In itself, an increase in consumer debt is not a worrying sign for the economy or individual consumers – it indicates that people have confidence in the economy. However, as we’ve seen over the past year, the economic situation can change quickly, and this may leave some borrowers behind on their payments.
Above all, it’s important that consumers borrow responsibly by making sure they can meet their loan repayments before they take on unsustainable debt in a rising rate environment.