Interest Rates on Consumer Credit Increase by the End of 2018

The latest data from the Federal Reserve Board’s G.19 Consumer Credit report show that all non-mortgage consumer credit, i.e., excluding loans secured by real estate, increased 5.0% in December, with revolving and nonrevolving credit increasing 2.0% and 6.0%, respectively. The current outstanding levels of debt, on a seasonally adjusted basis, are $1.04 trillion for revolving debt and $2.97 trillion for nonrevolving debt, totaling $4.01 trillion of outstanding debt in the U.S. Also, the interest rates extended on various types of revolving and nonrevolving credit by U.S. commercial banks increased, having not only followed an upward trend from previous years, but also throughout 2018, as the latest data from the G.19 report show.

As the figure above shows, the seasonally-adjusted flows of nonrevolving debt have been more than those of revolving debt. The G.19 report shows a drop in the flows of both revolving1 and nonrevolving2 credit in December 2018. However, both flows are still positive, implying that credit is still being extended to consumers in both categories.

As a previous post showed, as of the third quarter of 2018, the total stock of residential construction loans held by FDIC-insured institutions totaled $79 billion. According to the G.19 report, as of the end of December 2018, depository institutions held about $1.67 trillion of consumer credit, $749 million of which was in nonrevolving debt. Residential construction loans, therefore, held over 11% of nonrevolving debt in these FDIC-insured depository institutions.

Interestingly, the latest release of the Federal Reserve’s Consumer Credit report has provided terms of credit by commercial banks, i.e., interest rates, that are consistent with the survey responses from the newly released Senior Loan Officer Opinion Survey (SLOOS). In the survey, the tightening of banks’ lending standards for business loans as well as credit card loans was emphasized by many of the respondents as they geared up for 2019. The following figure provides the progressions of interest rates for different types of loans by year (2014-2018) and quarter (2018), as provided by the G.19 report.

As mentioned in the Federal Reserve’s summary page of the SLOOS, banks are expecting a depreciation in collateral values and therefore are looking to tighten standards. This is clearly evidenced by the above figure derived from the Consumer Credit report, where, not only do yearly progressions of different types of credit extended show rising interest rates, but also, more importantly, do the 2018 quarterly progressions. One can also glean from the above figure that interest rates on revolving credit have hovered well above interest rates on nonrevolving credit. Of the information that was available in the Fed’s report, car loans have the lowest interest rates.

The outstanding debt from student and auto loans continue to make the majority of non-mortgage nonrevolving credit, totaling $1.7 trillion from the fourth quarter of 2018.


 

Note:

  1. According to the Federal Reserve’s G.19 Consumer Credit report, revolving credit plans, which are largely composed of credit card debt but also include home equity lines of credit (HELOCs), may be unsecured or secured by collateral and allow a consumer to borrow up to a prearranged limit and repay the debt in one or more installments.
  2. According to the Federal Reserve’s G.19 Consumer Credit report, nonrevolving credit is closed-end credit extended to consumers that is repaid on a prearranged repayment schedule and may be secured or unsecured.


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