According to Equifax’s Quarterly Consumer credit demand* index for September, consumer credit demand has continued its upward trajectory, with early indications of further recovery in coming months following the easing of COVID restrictions in NSW and Victoria. Data from the first week of NSW reopening after 15-weeks in lockdown shows a jump in demand for auto loans, mortgages, and personal loans in comparison to the previous week in lockdown. Overall, consumer credit applications were up by 13% from the same period in 2020 and with lockdown restrictions easing around the country credit confidence is likely to further improve.

The Buy Now Pay Later Boom

Insight: Buy now pay later applications grew by 31.4% in the September quarter (vs September quarter 2020) and 13.5% in the June quarter (vs June quarter 2020).

The Buy Now Pay Later Industry (BNPL) has seen huge growth in recent years and banks are now rapidly moving into the space, launching their own BNPL services. Two of the latest examples are the CommBank app’s new StepPay service and Suncorp Bank’s PayLater service.

As convenient as these services are, it’s important to understand the impact using BNPL services may have on your credit score if you are unable to meet repayments, and use with caution.

Tips for using BNPL services wisely

• Make sure you fully understand the repayment terms and fees for missed payments.
• Include BNPL purchases in your budget, so you’re not using BNPL's flexibility to finance items you can’t afford or don’t need now.
• Don’t use BNPL flexibility to finance items you don’t really need or can’t afford.
• Link the payments to your debit card, not your credit card.
   

Credit cards

Credit card applications rose by +19.9% in the June quarter (vs the same quarter in 2020); however, credit card applications were flat (-0.3%) in the September quarter (vs September quarter in 2020).

A rise in consumer credit card applications in the June quarter may reflect people applying for new credit cards to cope with hardship induced by the pandemic during restrictions. If you’re applying for new lines of credit, it’s wise to check your credit score rating prior to credit applications as lenders often use your score as one of the indicators of credit risk to make informed decisions on credit applications under your name.

Tips for managing your credit cards wisely

• Shop around before you apply for new credit cards, as multiple applications may have a negative impact on your credit score.
• Reduce the number of cards you have whenever possible, as this can have a positive impact on your credit score.
• If your debt is getting out of control, one good method for getting it down is to focus on paying down the cards with the highest interest rates first.
• However, always pay the minimum due on all cards to avoid any potential black marks on your credit score.

Are 0% balance transfer credit card deals a good idea?

If you’re struggling to pay off high balances on your credit cards, 0% balance transfer credit card offers can be attractive. They allow you to transfer an existing credit card balance to the new card and pay 0% interest during the balance transfer interest free period, which can vary by lender. Currently this can range from 6 months to 36 months.

Used carefully, this can be an effective way to smash your credit card debt faster, as you can put all your money toward paying off the balance, rather than spiralling interest. However, they come with risks – typically high interest rates apply on any balance outstanding once the ‘honeymoon period’ is over. So, before you consider this option, calculate if you can really pay off the balance within the interest free timeframe or near enough.
 

Personal loans

Personal loan applications were up 20.3% in September quarter (vs September quarter 2020) and by +61.8% in June (vs June 2020 quarter).

Personal loans may help you manage your credit card debt by consolidating all of those debts into one loan. They may also help you finance something essential, such as home renovations. However, be aware that every loan application you make will add a credit enquiry to your report. Too many enquiries may have a negative impact on your credit score.

While people do take out personal loans to pre-pay major expenses, such as a wedding, new car or holiday, make sure that you can comfortably meet the repayments. As with any debt, missed repayments can have a negative impact on your credit score.

Good reasons for considering a personal loan include:

• You have multiple credit cards with high balances and/or other debts which you wish to consolidate.
• You need to fund essential, unavoidable costs, such as healthcare costs or purchasing a car needed for essential travel.

TIP: Only take out a personal loan to fund a non-essential expense if you have included future repayments in your budget and are sure you can meet them.
 

Auto loans

Auto loan applications increased by +16.7% in June quarter (vs June 2020 quarter) but were down in September quarter by -4.5%. (vs September 2020 quarter). It is fair to state that the auto loan market is sensitive to lockdowns. The drop in September quarter may have been a result of strict lockdowns in place in NSW and VIC whereas in June quarter car dealerships were open for business.

The new car industry was hard hit in 2020 by lockdowns both in Australia and overseas, which saw demand increase in the used car sector. However, 2021 is seeing a big rebound in new car sales, likely in part due to pent up demand.

TIP: If you’re looking to buy a used car, Car History can help you ensure you don’t get a lemon.
 

Mortgages

Mortgage applications were up 13.1% in September quarter (vs September 2020 quarter) and +33.4% in June(vs June 2020 quarter).

From pandemic sea- or tree-changers to remote auctions and Zoom property viewings, COVID-19 has had a big impact on the property market. The good news is that there’s a lot of help for first home buyers available right now.

If you’re currently looking to get a home loan, in addition to your deposit, secure employment, a strong record of genuine savings and a good credit history are all likely to strengthen your chances of being successful.

Remember to keep on top of your Credit Score prior to applying for any form of credit as this powerful tool may allow you to negotiate a better deal when it comes to credit matters.
Log in now to see your Credit Score and learn about the Key Factors Influencing your score in your dashboard.

* Based on Equifax’s Quarterly Consumer Credit Demand Index - June 2021 and Quarterly Consumer Credit Demand Index – Sept 2021

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.