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NZers retreat from credit as they find it tough

NZers retreat from credit as they find it tough to pay off debt

24 September 2010: Latest data from credit bureau Veda Advantage shows market conditions are still tough with New Zealanders continuing to retreat from credit but trying hard to pay off debt despite tight cash flow.

The company has reviewed its data with other data available and makes the following observations:

• There has been a massive 30 percent fall in consumer credit inquiries over the last three years

• As at the end of August 2010 credit inquiries were down 10.85 percent year on year but defaults were up 8.82 percent

• There was a 14.94 percent increase in numbers defaulting in August 2010 compared with the same month last year

• Debt is becoming harder to collect over the short term with a 66 percent drop in the collection rate for 90-day debt. However this has improved to a 27 percent fall by 365 days. This could indicate that consumer debtors are suffering some cash flow crisis through events such as unemployment or under employment or an inability to obtain

• Consumers continue to turn their backs on credit cards with inquiries down 23.95 percent compared with August 2009

• Customers instead are choosing to use debit cards which offer all the functionality of credit cards but with access to existing funds rather than credit

• August 2010 applications for hire purchase were down 6.69 percent on August 2009 – again reflecting the demise of 83 finance companies which have been the traditional HP lenders.

• Consumers who have in the past used HP for purchases now using personal loans with inquiries up 7.58 percent last month compared with August 2009.

Managing Director John Roberts says the data “illustrates the most significant shift in consumer attitudes to credit that New Zealand has witnessed in the last two decades and shows the radical change in the lending market.”

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This is supported by Veda Advantage’s monitoring of 1.26 million consumer records (monitoring VedaScore Plus bureau scorecard). This shows that between the July 2009 launch and March 2010 the general population’s risk-profile fell by 12 percent (when reflected in individuals credit scores.)

“Consumer appetite for credit is down, people are moving to consolidate debt and mainstream banks are, in part, stepping into the void left by the finance companies via personal loans.”

“But at the same time the availability of credit has tightened with banks and finance companies only offering credit to low-risk applicants.”

However, the trends in the data does suggest that over time individual ability to consume and pay back credit will head back to pre-global financial crisis levels as people unwind their debt positions.


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