CHICAGO – A new study released last week showed most borrowers with debt tied to the market interest rate could absorb increased monthly payments due after the Federal Reserve Board increased rates last December.
The TransUnion study identified 63 million consumers with such debt, and used an aggregate excess-payment algorithm to identify 10.6 million with elevated risk of not having the capacity to absorb the 0.25 percent rate increase.
The study found that 1 million consumers were delinquent at the end of March, which was only slightly lower than a control group with no variable-rate products, according to the study. TransUnion concluded consumers with variable-rate credit could manage the rate increase similarly to consumers without variable-rate products.
“Most consumers appeared able to reallocate their available cash, or make small changes to their spending habits, to effectively absorb the December rate increase,” said Ezra Becker, senior vice president of research and consulting at TransUnion.
TransUnion, a credit information and analytics group, however, noted the study only provided an analysis of immediate-term impacts for the rate increase. Long-term effects could be different, and it doesn’t account for any subsequent rate hikes.
“It is important for both lenders and consumers alike to be cognizant that a rising-rate environment presents a different dynamic than a steady-state or falling-rate environment,” according to the group.
A full analysis can be found HERE.
Eli Sherman is a PBN staff writer. Email him at Sherman@PBN.com, or you can follow him on Twitter @Eli_Sherman.
