Personal loans on the rise as consumers shy away from credit cards

Consumer credit demand fell by 1.4% for the September quarter, according to consumer data intelligence company Veda, as Australian consumers maintain cautious spending and become more determined to reduce debt.

In its latest Consumer Credit Demand Index, Veda measured the change in credit demand for the September quarter compared to the same period in 2011.

According to Veda, the contraction in overall consumer credit demand was driven by a continued drop in credit card applications, partially offset by a rise in personal loan applications.

On a state-by-state basis, credit card applications fell in all states for the quarter, reaching their lowest level in nine years.

The sharpest declines were in Tasmania (-14.5%), South Australia, (-14%) and Queensland (-13.2%). Consumer appetite for credit cards was also weak in WA, NSW and Victoria.

Meanwhile, personal loan applications picked up notably in the September quarter.

WA and the Northern Territory had the strongest growth, increasing by 12.4% and 10.1% respectively, followed by Victoria (8.2%), NSW (6.7%) and Queensland (6.3%).

In both South Australia and Tasmania, growth in personal loan applications was close to 4%.

It’s worth noting the growth in personal loan applications was helped by a notable rise in auto loans in the September quarter, which coincided with a 9% increase in new car sales for the month of September.

The continued growth follows on from the June quarter, which recorded the highest number of auto loan applications since 2007.

“While consumer credit demand showed slight growth in the June quarter as a result of RBA rate cuts and family assistance payments, the impact of the Federal Government’s cash handouts has now faded, with consumer credit demand decreasing relatively quickly in the September quarter,” says Angus Luffman, Veda’s general manager of consumer risk.

“The data for the September quarter shows a similar trend to the one seen around the time of the GFC, in which stimulus pulls forward credit demand.”

“In this instance, the demand came through in the last weeks of the June quarter, followed by a decrease in July and August, and a pickup in September.”

The latest data suggests lower interest rates are not having an effect on demand for consumer credit, Luffman says.

“In the current environment, the short-term outlook for consumer spending and credit growth is modest,” he says.

“As households face increased expenditure, uncertainty around wage growth and levels of unemployment, they will continue to be cautious, save and pay down debt.”

“This trend is likely to continue given the Federal Government’s pullback on welfare benefits such as the baby bonus and health insurance rebates.”