More consumers are considered financially unsound than last year. (iStock)
Inflation and the pandemic have driven up interest rates and lowered consumer satisfaction, with roughly 73% of consumers with loans classified as financially unhealthy. J.D. Power Consumer Lending Satisfaction Survey found.
Last year, 67% of consumers fell into a similar category, indicating that times remain tough for many borrowers, forcing lenders to beef up their offerings to attract and retain customers.
Higher levels of financial health often correlate with customer satisfaction. Meanwhile, financially struggling consumers report lower satisfaction with their loans, the study said. On a scale of 1,000, J.D. Powers found that consumers with higher financial health had a satisfaction score of 797. Consumers with lower financial health scored just 668.
“Consumer loans are primarily used to consolidate high-cost debt at a lower interest rate, which is a tough proposition when interest rates have remained high for an extended period of time,” said Bruce Gerke, senior director of wealth and lending intelligence at J.D. Power. “As a result, we’re seeing a significant decline in customer satisfaction among those who are financially at highest risk and who could benefit most from products that help them consolidate or reduce their debt.”
Financially healthy consumers typically return to the same lenders they previously used when seeking additional loans or credit products. Over 79% of financially healthy consumers surveyed said they plan to do business with their bank or lending institution again. Only 55% of less financially healthy customers said they plan to continue doing business with their lender.
Among personal loan lenders, American Express ranked highest in customer satisfaction with a score of 781, according to J.D. Power. Discover came in second with a satisfaction score of 742, and Citi came in third with 730.
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Credit card usage is on the rise as inflation continues
Many consumers take on second jobs to pay the bills
For many Americans, making the most of their bills is a struggle, leading to increased reliance on loans and credit. To cover monthly expenses, some consumers are taking on second jobs or gig work.
Nearly 30% of American consumers who have a side hustle say losing that income would have a serious impact on their finances. PYMNTS Survey Furthermore, 53% of respondents who live a life where they run out of money before payday expressed the same sentiment.
The need for a side hustle comes at all income levels: According to PYMNTS, about 26% of high-income consumers making more than $100,000 are also looking for extra income.
Additional income comes in many forms, and consumers who still can’t cover all their bills with their side hustles often turn to friends and family: Just over 8% of workers making less than $100,000 a year in the survey asked family members for help, followed by higher earners, who reported 7% asking others for financial help.
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Credit card delinquencies are on the rise
Credit card debt is a tough problem for many Americans. While credit card balances fell slightly in the first quarter, delinquencies increased. Federal Reserve Bank of New York report found.
Credit card delinquency rates are above pre-pandemic levels, indicating that the post-pandemic economy is creating severe financial hardship that Americans may not be able to climb out of.
Younger cardholders are more likely to max out their credit card limits than older generations. While few baby boomers maxed out their credit card limits in the first quarter, 15.3% of Gen Zers used at least 90% of their limits, the report said. But Gen Zers max out their limits more because they haven’t had credit as long as older generations, and so their limits are much lower. The average Gen Z limit is just $4,500, compared to $22,000 for baby boomers.
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