Consumer Borrowing Surged in May by Most on Record
American consumers have started borrowing more as the economy recovers from COVID-19, especially in auto loans and leases, general-purpose credit cards, and personal loans. Bloomberg economists predicted an $18 billion gain, but Federal Reserve data found a $35.3 billion gain in May, which is the highest on record.
“There’s a significant increase in consumer-credit demand and a growing appetite to use credit on things like those vacations that were postponed for 18 months,” said Tom Aliff, senior vice president of analytics consulting at Equifax, according to the Wall Street Journal.
Non-revolving debt like auto and school loans rose $26.1 billion, the most on record. Motor vehicle sales climbed in April and May as car prices rose, which led to increased borrowing. Revolving debt—like credit cards—increased $9.2 billion after declining in April. Overall credit card balances also increased as more consumers are shopping and eating at restaurants.
Alternatively, many consumers have started paying down their credit card debt, so big banks started unwinding the strict standards they set in place when the pandemic began. Lenders also mailed 127 million personal-loan solicitations in May, more than double the year prior.
Additionally, some lenders are extending more credit to consumers with low credit scores. In March, nearly 1.4 million general-purpose credit cards were made available to subprime borrowers, up 28 percent from 2020 and 25 percent from 2019. Also in March, roughly 602,000 subprime auto loans and leases were originated, up 31 percent from 2020.
“The U.S. consumer is poised to lead the economic recovery across the country,” said Brendan Coughlin, head of consumer banking at Citizens Financial Group Inc.