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Applications for personal credit slump

Media release

Applications for personal credit slump as consumer confidence plummets

8 April 2008 - Statistics released by Veda Advantage, the country’s largest credit reporting agency, show a significant drop in applications for personal credit, lending more weight to recent talk of a slump in consumer confidence.

The figures for the first quarter of 2008 show a 52% decrease in hire purchase applications from the same period last year, while applications for personal loans are down 12%. The analysis takes into account credit applications from three demographics; Baby Boomers (born 1946-1964), Generation X (1965-1980) and Generation Y (1981-1994).

Veda Advantage Country Director John Roberts says, “Rising fuel and food prices coupled with high interest rates are putting the squeeze on household budgets. Our figures show a 33% increase in the outgoing cash flow of the average household over the last couple of years. It is not surprising to see applications for hire purchases and personal loans drop off to such an extent as household expenditure stresses kick in.”

Personal loan applications were down across all demographics, a statistic which Veda Advantage says reflects the growing tendency for homeowners to leverage the equity in their homes by using a revolving credit facility to purchase more expensive items such as whiteware and high-end electrical goods.

While applications for personal loans and hire purchases have dropped, credit card applications have remained steady, driven in part by an increase in usage amongst Generation Y.

Mr Roberts states that, “Generation Y are used to taking on debt because of student loans, and simply consider cards another form of unsecured credit. They are increasingly credit dependent, with credit cards superseding HP and personal loans as the most popular form of credit.”

Mr Roberts concludes, “We’re currently in the downturn of the credit cycle. Mortgage and personal credit applications peaked in 2005, and fell back in 2006 and 2007. So while the immediate outlook for retailers isn’t great, the historical trend would indicate we are likely to see an upswing in 2010.”

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