Credit cards debts being paid off faster
It comes as figures show banks have passed on only a fraction of recent Reserve Bank interest rate cuts to credit card customers, with personal and car loans mirroring a similar move.
In a sign households remain debt-shy, the average credit card balance slumped 2.4 per cent to $3256.70 in the year to March, Reserve Bank figures showed on Monday.
The average balance that is accruing interest fell even more sharply, by a record 5.7 per cent to $2294.30, according to CommSec economists, the biggest annual fall since such figures began in 2002.
The rush to pay down credit card debt coincides with banks reducing card interest rates by an average of only 0.12 percentage points since late 2011, compared with a 2 percentage point cut in official rates set by the Reserve Bank.
Banks have also failed to pass on official rate cuts to people with personal loans.
Figures from Canstar show personal loan interest rates have fallen just 0.78 percentage points since October 2011 to 14.68 per cent, less than half the reduction in official rates over this period.
Car loans rates offered by the big banks have fallen by even less, dropping 0.58 percentage points, to 14.73 per cent.
Canstar analyst Joshua Zenas said interest rates on personal loans came under less public scrutiny than mortgage rates, which made the market less competitive. Also, he said, borrowers did not shop around for personal loans as thoroughly as for home loans.
"Mostly, they are comfortable staying with the bank they are with."
The profits from personal loans are worth millions to banks. About $1 billion in new car loans is issued each month, and personal finance commitments are worth more than $7 billion a month.
Frequently Asked Questions about this Article…
Consumers are rushing to pay down credit cards at a record pace as households remain debt‑shy. Reserve Bank figures cited in the article show the average credit card balance fell, and the amount of card debt that is accruing interest fell even more sharply — signalling many cardholders are reducing balances rather than carrying ongoing credit card debt.
Reserve Bank figures showed the average credit card balance slumped 2.4% to $3,256.70 in the year to March. CommSec economists noted the average balance that is accruing interest fell a record 5.7% to $2,294.30 — the largest annual fall since such data began in 2002.
No — banks have passed on only a fraction of recent Reserve Bank rate cuts to credit card customers. The article reports card interest rates have been reduced by an average of just 0.12 percentage points since late 2011, while official rates were cut by around 2 percentage points over the same period.
According to Canstar figures in the article, personal loan interest rates have fallen just 0.78 percentage points since October 2011 to 14.68%, which is less than half the reduction in official rates. Car loan rates offered by the big banks have fallen even less — down 0.58 percentage points to 14.73%.
Canstar analyst Joshua Zenas said personal loan rates have faced less public scrutiny than mortgage rates, making that market less competitive. He also noted borrowers tend not to shop around for personal loans as thoroughly as they do for home loans, and many customers stay with the bank they already use.
The article states that profits from personal loans are worth millions to banks. It also notes about $1 billion in new car loans is issued each month and personal finance commitments exceed $7 billion a month, underlining the scale and profitability of these lending streams.
The fall was historically significant: the average balance that is accruing interest fell by a record 5.7% to $2,294.30 in the year to March — the biggest annual fall since such figures began being compiled in 2002, according to CommSec economists.
The article highlights two key trends: households are deleveraging by paying down credit card balances, and banks have not fully passed on official rate cuts for cards, personal and car loans — leaving those lending margins relatively intact. For investors, that means consumer credit volumes and bank lending profitability remain important variables to watch, given the large monthly flows into car loans and personal finance shown in the article.
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