Consumers may now be feeling much better about their own finances and the economy in general, because credit card lending took a sizable step forward during the month of May.
Americans' outstanding credit card balances increased significantly in May, as borrowing surged $8 billion - an 11.2 percent increase - to a total of $870.2 billion, according to the latest monthly statistics on consumer credit released by the Federal Reserve Board. This stark increase came after consumers cut balances by 4.9 percent in April, and was large even in comparison with the previous monthly increases observed throughout this year. Consumers haven't owed this much on their cards in years; at the end of 2009, for instance, balances stood at $921.9 billion, but fell to $857.4 billion by the end of 2010.
And at the same time, borrowers also increased the rate at which they took on nonrevolving loans - that is, financing for auto purchases and to fund education, but not including mortgages - as well, the report said. This type of credit rose another 6.5 percent in May, and spiked to more than $1.7 trillion as a consequence. This has followed several months of increases, and now stands well above even the more than $1.64 trillion seen at the end of last year.
Overall, consumer credit jumped another 8 percent in May, continuing that trend as well, the report said. Now, consumers owe a total of more than $2.57 trillion to lenders on all types of non-mortgage credit, well beyond numbers seen prior to the recession taking its full toll on the economy and consumers' finances.
However, the affordability of financing on many of the most popular types of credit have also been improving for some time, the report said. The average interest rate on all credit card accounts now stands at just 12.06 percent, down significantly from the 12.34 percent at the end of the first quarter, and the first time rates have been at roughly this level since the end of 2008, when they stood at 12.08 percent. Further, average rates on accounts assessed interest in May was 12.76 percent, a decline from the first quarter's 13.04 percent.
In addition, rates on 48-month new auto financing slipped to just 4.87 percent, the lowest rate seen since at least 2007, and down from 5.07 percent at the end of the first quarter, the report said. At the same time, though, rates on 24-month personal loans actually rose to 10.94 percent from March's 10.88 percent. However, this rate was more in line with the numbers seen at the end of the first quarter last year.
In general, experts have noted that consumers have been avoiding taking on too much debt on their cards likely because of the problems they had in dealing with their finances during and following the recession. Lenders have been dramatically broadening their card issuing efforts, however, and now send offers even to subprime borrowers.
