Credit forecast 2022: Larger loans to higher risk customers will expand the market as the economy normalizes
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With the consumption landscape starting to look more like the pre-pandemic era, continued loan expansion is expected in 2022, with origination levels reaching or exceeding pre-pandemic levels, according to consumer credit forecasts. Recently released TransUnion Financial Services 2022.
The forecast revealed that the auto, credit card and personal loan markets are expected to continue expanding into the non-premium segment of the market as financial institutions recalibrate their growth strategies.
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Charlie Wise, senior vice president of research and advisory at TransUnion, told GOBankingRates that many lenders have withdrawn or completely halted their loans during the height of the pandemic, and without creating new loans or expanding credit products. , the growth of many lenders was slowed in 2020.
“Now that the economy is starting to normalize and lender confidence has been restored, lenders are more comfortable extending credit again, especially to the non-privileged segment of the market,” Wise said. “The fact that new volumes are expected to meet or exceed 2019 levels in many market segments is a sign that things are on the right track for recovery. “
Indeed, TransUnion has found that unprivileged arrangements are expected to impact many credit industries.
Personal loan origination is expected to continue increasing in 2022, marking seven consecutive quarterly increases and the share of non-senior loan origination will continue to increase to 71% in 2022, from 68% in 2021.
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Auto loan arrangements are expected to rise to 28.9 million in 2022, against 28.3 million expected in 2021, well above the 26.8 million arrangements observed in 2020. Non-prime arrangements should rise from 9.4 million in 2021 to 10 million in 2022, representing a higher share of all auto loans.
While the growth in credit card origination to non-privileged borrowers will slow from 29.2 million in 2021 to 28.8 million in 2022, the number of loans extended to this group of consumers remains well above 2020 levels (20 , 4 million) and 2019 (26.3 million).
At the height of the pandemic, many lenders are predicted to pull out and tighten underwriting to cover risk in a time of great uncertainty. However, consumer performance remained strong, which restored lender confidence.
Wise explained that the forbearance programs and government stimulus funds “worked as intended and provided a safety net for many consumers as well as additional cash.”
“Financial institutions are poised to return to credit and meet the demand for credit for consumers who have traditionally been in the riskier credit segments – something that lenders weren’t as enthusiastic about when there was a greater uncertainty in the market, ”he said.
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Another key finding from the forecast is that card balances are expected to continue their upward trend in 2022, following strong growth in bank card issuance in 2021. This growth is expected to fuel the continued recovery in consumer spending throughout the year. summer and at the start of the holidays. shopping season. Indeed, in the first quarter of 2022, balances are expected to show up to 10% year-over-year growth and then stabilize – with spending levels remaining below pre-pandemic levels, according to TransUnion.
“Card balances saw a significant drop in 2020. Lockdowns were in place across the country and the things consumers were spending money on – whether it was retail, entertainment. or catering – were all closed, ”Wise said. “In addition to the decline in consumer spending, consumers had more cash in the form of government stimulus funds and could repay their balances.”
Fast forward to 2021 and the economy has normalized from a year ago, he adds. “There has been a vaccine rollout, businesses are open and consumers are returning to work and this is a trajectory that we plan to continue. Consumers are more confident in the economy, which should lead to a pickup in spending. “
He warns, however, that if significant disruptions occur in the economy, such as new variants of COVID-19, it could impact the growth of the equilibrium.
Finally, Wise said TransUnion expects consumers to continue spending more money as long as economic conditions remain favorable.
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“If card balances start to reach pre-pandemic levels, we believe this will also stimulate the growth of the consumer loan market as many consumers seek personal loans for debt consolidation purposes,” did he declare. “We expect an increase in the volume of personal loans for other reasons such as home renovations – more consumers are working from home – and just an overall increase in demand for credit.”
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