Consumers took out more credit cards and personal loans in the second quarter

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Lenders also stepped up lending to subprime borrowers

With inflation shifting into overdrive during the second quarter of the year, consumers turned to credit cards and personal loans to help them get by. A new report suggests that lenders were happy to help.

TransUnion’s Q2 2022 Quarterly Credit Industry Insights Report shows that the number of consumers with credit cards and personal loans reached record highs, in part because lenders extended credit to more consumers in the subprime category.

Some personal finance experts might see that as a cause for concern in uncertain economic times, but Michele Raneri, vice president of U.S. research and consulting at TransUnion, says it’s not necessarily a red flag.

“Consumers are facing several challenges that are impacting their finances on a day-to-day basis, namely high inflation and rising interest rates,” Raneri said. “These challenges, though, are happening against a backdrop where employment opportunities are still plentiful and jobless levels remain low.”

Getting credit for the first time

Raneri says the fact that lenders are extending credit to more subprime borrowers – some of whom are getting credit for the first time – is actually a positive development. So far, she says the data doesn’t reveal any sign of trouble.

“While delinquencies generally rise after a period when more non-prime borrowers secure loans, the rates of delinquency remain mostly at or below pre-pandemic levels, particularly for cards and personal loans,” she noted. 

In the second quarter of the year, 161.6 million consumers had access to a credit card, up from 153.3 million a year earlier. Twenty-one million consumers had a personal loan during that period, an increase from 18.7 million in the second quarter of 2021.

The report shows that many of the new borrowers were among the youngest consumers. Loans to Gen Z consumers increased by 31.6% between the first quarter of 2021 and the first quarter of 2022. The subprime segment’s total balances grew by 51.7% year-over-year, which is the highest growth rate ever achieved. 

How to find the right loan

Consumers who are accessing credit for the first time should research both credit cards and personal loans before deciding which one meets their needs. Both are unsecured loans, but the interest rates can vary widely. The average interest rate on credit cards is currently around 20%, but it's much higher for consumers in the subprime category and those who are new to credit.

The interest rate on personal loans tends to be lower. The rate on personal loans could be as low as 6%, but it will be higher for consumers who are tapping into credit for the first time. Still, the rate on personal loans is usually lower than on credit cards.

ConsumerAffairs’ guide to “The Best Credit Cards” breaks down cards for different uses and different credit standings. There are also thousands of verified reviews.

Our guide to “The Best Personal Loans” provides hundreds of verified reviews about personal loan lenders and explains how they work. For example, personal loans are structured more like traditional loans than revolving credit, with set repayment terms.

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