Now may be good time to get loan or mortgage
As economy rebounds, Americans spending and borrowing again
The pandemic knocked borrowers on their backs in the spring of 2020, but as the economy regained its footing, so, too, has the willingness of consumers to borrow.
Consumer applications for auto loans, new mortgages and revolving credit cards all mostly returned to pre-pandemic levels by May 2021, according to a new report by the Consumer Financial Protection Bureau.
Skyrocketing unemployment a year ago crushed demand for credit. Who wanted to take on a big car payment when they were unsure whether they could make the old car payment? Or if they weren’t driving to work but instead setting up shop at home?
Auto loan inquiries, for example, plunged 52 percent by the end of March 2020. States in the Northeast and California, together with Michigan and Nevada, experienced the largest drops.
Many are vaccinated and back to borrowing
Going forward, economists say the outlook hinges on the path of the virus and vaccination efforts. The jobs picture improved after progress was made getting people vaccinated and we saw strong stimulus support programs roll out of Washington.
But the economic recovery could still face stops and starts.
The Federal Reserve policy committee moved Wednesday to keep short-term interest rates at the near zero level as worries about the delta variant spread.
“Despite the overall trend toward a recovery, we find that consumers with deep subprime and subprime scores still have not recovered to their pre-pandemic levels, likely in part due to a tightening of credit for these consumers,” the Consumer Financial Protection Bureau noted.
Other key trends from the CFPB brief include: Mortgages: When it comes to shopping for mortgages, we’ve seen unusually high activity in the mortgage market throughout the pandemic following a brief initial dip. Inquiries have exceeded their usual, seasonally adjusted volume by 10 percent to 30 percent, reflecting low interest rates and a stronger housing market.
Credit cards: Consumers appeared to be the least willing to put another piece of plastic into their wallets. It took a full year — from March 2020 until March 2021 — for revolving credit card inquiries to recover back to their usual levels.
Car loans: Consumers with excellent credit or super prime scores surprisingly are not shopping for car loans at pre-pandemic levels. But the report noted that there could be a drop in demand for credit among this group of consumers, which may include workers who are able to work from home may not want to buy a new car.
Overall, the consumer’s willingness to take out an auto loan returned back to pre-pandemic levels by January 2021, according to data reviewed by the federal agency, which was established after the 2008 financial crisis.
Jonathan Smoke, chief economist for Cox Automotive, said credit conditions have been favorable all spring and summer, supporting strong demand for car and truck sales.
Credit to buy a car is easier to get than it was a year ago, he said, shifting back to where it was before the pandemic started.
“Rates continue to be lower than a year ago,” Smoke said. “Spreads had widened last year during the pandemic, especially for lower credit tiers.”
But now most car loan borrowers have seen lower rates, he said, especially subprime borrowers who have seen lower rates this spring and summer.
“Now that bond yields are retreating from their early spring highs, it is likely that consumers will continue to see low and attractive rates on auto loans,” Smoke said.
And lower auto loan rates can help to offset the impact of price increases since most people take out a loan to buy a car or truck.
Total consumer credit shot up 10 percent in May, according to Federal Reserve Consumer Credit Report. That’s the biggest increase in five years.
What’s a good deal on a car loan, mortgage, credit card?
“The biggest factor in the renewed borrowing interest is the improved, and reopening, economy,” said Greg McBride, chief financial analyst for Bankrate.com.
Low rates also are helping fuel many purchases. The average fixed rate for a 30-year mortgage is 3.04 percent — down from 3.3 percent last year, according to Bankrate.com. An even better rate of 2.5 percent is available with no points.
When it comes to a five-year new car loan, the average rate is 4.15 percent down from 4.24 percent last year. McBride said the best rates are in the low 2 percent range, but you’ll see credit union deals of 1.99 percent.
Average rates on a four-year used car loan are 4.71 percent — down from 4.99 percent a year ago. The best rates can be in the 2 percent range for borrowers with strong credit.
When it comes to credit cards, the average rate is 16.16 percent, according to Bankrate.com. That’s up from 16.04 percent last year. But borrowers with strong credit can get much better deals. Some promotions are offering 0 percent for up to 18 months for purchases and balance transfers, McBride said.