Consumers discouraged by high interest rates and deteriorating financial health: study

Consumer satisfaction is taking a dip in the wake of high interest rates, driven up by inflation and the remnants of the pandemic. Nearly 73% of consumers with loans are now categorized as financially unhealthy, J.D. Power’s Consumer Lending Satisfaction study found.

Last year, 67% of consumers were categorized the same way, indicating that times are getting tougher for many borrowers. This is forcing lenders to up their offerings to attract and keep customers.

Higher levels of financial health often correlate with customer satisfaction. On the other end of the scale, consumers struggling financially report less satisfaction with their loans, the study said. On a 1,000-point scale, the satisfaction score for consumers with high financial health was 797 in the J.D. Powers study. Consumers with low levels of financial health have a score of just 668.

"Consumer loans are primarily used to consolidate higher-cost debts at a lower rate, but that’s a tough proposition when interest rates have remained so high for so long," said Bruce Gehrke, J.D. Power senior director of wealth and lending intelligence. "As a result, we’re seeing significantly lower levels of customer satisfaction among those who are most at-risk financially and arguably could benefit most from products that help them consolidate or reduce debts."

Financially healthy consumers also typically return to the same lenders they’ve used for additional loans or credit products. More than 79% of financially strong consumers surveyed said they planned to work with their bank or lending institution again. Only 55% of financially unhealthy customers said they’d continue working with their lenders.

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 while Citi ranked third with a 730 score.

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CREDIT CARD USAGE IS UP AS INFLATION CONTINUES TO RISE

Everyday bills are difficult for many Americans to keep up with, which is leading to a larger reliance on loans and credit. To help keep up with monthly expenses, some consumers have taken on side hustles and gig work.

Nearly 30% of American consumers who have side hustles say losing that income would mean a serious blow to their financial health, a PYMNTS study said. Additionally, 53% of respondents that live paycheck-to-paycheck felt the same way.

The need for side hustles doesn’t discriminate against income level. About 26% of high-income consumers earning $100,000 or more also sought out extra income, according to PYMNTS.

Additional income comes in many shapes and forms, with many consumers turning to friends and families when their side hustles still don’t cover all the bills. Just over 8% of workers earning less than $100,000 asked for help from their families in the study. High-income earners followed closely, with 7% reporting seeking financial assistance from others.

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MANY AMERICANS SPEND MORE THAN 30% OF THEIR TAKE-HOME PAY ON A MORTGAGE: SURVEY

Credit card debt is difficult for many Americans to face. Although credit card balances fell slightly in the first quarter, delinquencies are on the rise, a Federal Reserve Bank of New York report found.

Delinquencies for credit cards have risen above pre-pandemic levels, signaling that the post-pandemic economy is causing serious financial hardship that Americans are unable to climb out of.

Cardholders that belong to younger generations are more likely to be maxed out on their credit cards than those in older generations. Hardly any Baby Boomers were maxed out on their credit cards in the first quarter, but 15.3% of Gen Zers used at least 90% of their credit limits, the report said. However, Gen Zers use more of their limits largely because they haven’t had credit for as long as older generations, so their limits are much lower. The average Gen Zers has a credit limit of just $4,500, compared to credit limits of $22,000 on average for Baby Boomers.

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CREDIT CARD SPENDING THE LEADING REASON WHY 78% OF AMERICANS HAVE DEBT REGRET: SURVEY

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