With inflation and interest rates on the rise, it comes as no surprise that more people are struggling to manage tighter household budgets. According to a new Credit Indicator report released by credit bureau Centrix, consumer arrears rose by 5% in October as compared to a year before. There was also a marked increase in the demand for consumer loans, more specifically, personal and car loans.
Car loan demand rose by 17% while personal loan demand increased by 18% as compared to the same period in 2021. There was also a further increase in home lending arrears for the third consecutive month. Centrix managing director, Keith McLaughlin, said that the home lending arrears were likely to persist well into next year, as the full effect of the rising cost of living and new interest rates was felt.
He expressed concern for the retail sector which was causing an increase in business defaults, driven by consumers opting to cut back on non-essential spending. It was however noted that the hospitality and tourism sectors appeared to be enjoying some positive gains thanks to a growing return of international travellers to the country. McLaughlin noted that young borrowers and those on tight budgets were most affected by the rising cost of living and would prioritise their spending, with non-essential spending being low on the list.
Another survey by health insurer nib found that parents were another demographic suffering under the pressure of cost of living increases. 62% of parents surveyed confirmed that rising prices had affected their ability to raise children, with 43% cutting back on activities that cost money, while 39% reduced their non-essential spending. A third of parents also expressed worries about meeting debt and mortgage repayments. Of those surveyed, ethnic minorities were found to experience even greater financial pressures.
The Centrix report noted that about 400,000 people were in arrears on their consumer loans, up from around 375,000 borrowers in the previous year. 4.2% of credit-active consumers with a payment obligation on a credit account we also found to be over 30 days in arrears in October. This is compared to just 4% in September. Consumer credit defaults were also found to have risen by 21% since a year ago.
Mclaughlin noted that while arrears were on the rise, so too was the demand for consumer loans as people sought out new ways to make ends meet. He identified personal loans, car loans, telecommunications, utility bills, and mortgages as among the credit products that people were struggling to make repayments on.
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