Australians have been warned of “greater stress to come” as demand for unsecured credit such as Buy Now, Pay Later options surge.
New data released by Equifax shows applications for instalment plans such as Zip and Afterpay have jumped by more than 40 per cent in the last quarter.
There was also an increase in personal loan applications (up 4.2 per cent) but this growth was offset by rising arrears, which have climbed to the highest level since the start of the pandemic.
Concern over credit trend
Equifax general manager of advisory and solutions Kevin James said activity in the personal loan market is often an indicator of future trends in other areas of consumer credit.
“The increase in arrears for personal loans could be a sign of greater stress to come,” James said.
“We’ve seen this play out in overseas markets.”
Credit card demand increased this quarter, up 6 per cent year-on-year after three consecutive quarters in decline.
“The recent increase in credit card demand may have been influenced by the return of international travel, with many consumers using credit cards to earn points and for overseas spending,” James said.
“As travel continues to increase, we may see further growth in credit card demand going forward.”
Demand for mortgages drop market adjusts
Overall, consumer credit demand grew by 10.2 per cent compared to the same period last year according to the Equifax research.
However, mortgage demand dropped by 5.3 per cent compared to June 2021.
It comes as the housing market adjusts to the inflated prices in 2021 which were buoyed by historically low interest rates.
Auto loan applications also declined in the June quarter, down 15.1 per cent compared to the same quarter in 2021.