Demand for credit card debt and auto loans has continued to increase even though US banks have further tightened credit standards, according to a Federal Reserve report.
The survey of senior bank lending officers revealed banks tightened standards on credit card and auto loans, as well as commercial and industrial loans, over the fourth quarter of 2023.
In particular, banks implemented higher minimum required credit scores and wider interest rate spreads over the cost of funds for credit card and auto debt loans.
Many banks also tightened the extent to which loans are granted to customers that do not meet credit-scoring thresholds, according to the report.
Banks cited an uncertain economic outlook, reduced tolerance for risk and a deterioration in their current or expected liquidity positions as reasons for tightening their credit standards.
Even though banks have tightened their credit standards, the Federal Reserve Bank of New York reported credit card and auto loan balances increased over the fourth quarter, notably among younger borrowers.
The report found that credit card balances, which tend to grow in the fourth quarter due to holiday spending, increased by $50 billion to reach $1.13 trillion.
Auto loan balances also rose, by $12 billion to $1.61 trillion, continuing steady growth since 2011.
According to the report, demand for loans tends to decrease with age so younger generations have borrow at slightly higher rates than older ones.
Wilbert van der Klaauw, economic research advisor for the New York Fed, said: “Credit card and auto loan transitions into delinquency are still rising above pre-pandemic levels. This signals increased financial stress, especially among younger and lower-income households.”
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