How Consumer Lending Trends Impact Economic Growth in the US

How Consumer Lending Trends Impact Economic Growth in the US

The US economy is a complex system, so its balance highly depends on the interplay of multiple factors. Consumer lending is one of them. It influences everything, from individual spending to national growth, while being a double-edged sword. This means that its trends can have both positive and negative consequences, impacting millions of Americans in various ways.

For example, raising interest rates could encourage saving but dampen borrowing. This will lead to slower economic growth but can potentially stabilize inflation. Let's take a look at the major consumer lending trends for 2024 and find out how they can impact the US economic growth.

Knowing the trends in consumer lending can help both businesses and individuals stay informed and prepare for the new reality. Finance writers from BadCredify – a consumer loan review platform, conducted thorough research to find out what tendencies the industry will face in 2024.

Interest Rate Increase

The continuation of interest rate hikes remains the most critical trend for 2024. This is because the Federal Reserve is expected to raise rates further to fight inflation. This will directly impact consumer lending, making loans more expensive for individuals and businesses seeking car, home, or purchase financing.

Consequently, demand for credit might soften, potentially slowing economic growth and impacting specific sectors reliant on borrowing. Higher interest rates will reduce loan availability and increase lenders' requirements for the borrowers' creditworthiness. Thus, financial institutions will give preference to lower-risk borrowers, while those with bad credit backgrounds may be overlooked.

Profit Potentials

Although the rise in interest rates is bad news for borrowers, it holds potential for lenders. As the cost of borrowing increases, financial institutions can expand their profit margins on loans. This may also result in more stringent lending criteria. However, the overall profitability also depends on other factors, such as loan delinquency and the general state of the economy.

Increased Regulatory Restrictions

We might see an uptick in regulatory restrictions within the consumer lending space in 2024. The government might announce stricter measures to prevent or resolve problems regarding predatory lending practices, debt levels, and potential systemic risks.

These restrictions may include tighter eligibility criteria, loan term limitations, and stricter capital requirements for lenders. On the one hand, it will protect consumers and promote financial stability. However, it could also increase borrowing costs and limit access to credit, especially for high-risk borrowers.

Customer Service Prioritization

As the market becomes more competitive and regulations evolve, lenders in 2024 are expected to place greater emphasis on prioritizing customer service. The Rivel Banking Research as of 2023 Q3 shows that about 32% of retail banking customers nationwide were open to switching their primary bank. Lack of customer support was named among the factors, along with antiquated digital experience, high fees, and poor deposit rates.

Customer service prioritization may involve streamlining the loan application process with user-friendly technology and clear communication, offering flexible repayment options, providing personalized financial guidance, and investing in customer support channels.

Domination of Account Information Services (AIS)

The rise of Account Information Services (AIS) is another significant consumer lending trend for 2024. AIS are services that allow individuals to securely share their financial data with third-party apps and manage them more efficiently. With their help, users can see all their transactions and account balances from different banks in one place.

Apps can use AIS data to offer personalized budgeting tools, investment opportunities, and debt management strategies. For users, AIS can simplify various tasks, such as bill payments and money transfers across different accounts.

Implementation and Improvement of AI-Powered Tools and Models

In 2024, borrowers will have to prepare for a significant increase in artificial intelligence (AI) in the lending industry. It is anticipated that lenders will use AI-powered tools and models more and more for a range of purposes, such as automated loan approvals, more precise credit scoring, and customized risk management.

While careful consideration must be given to ethical issues and potential biases in AI algorithms, the responsible implementation and advancement of these tools have the potential to change the industry for the better. The most significant transformations may concern credit availability and affordability, especially for underserved communities.

How Will the Consumer Lending Trend Impact the US Economy?

The way different trends in consumer lending interact in 2024 will have a complex effect on the US economy. Let's take a look at some possible results:

Slower growth. Growing interest rates and declining demand for loans may affect sectors like retail and construction. Therefore, it may slow down the US economy.

Shifting investment. Lenders may shift their focus to low-risk borrowers due to tighter regulations and heightened competition. This will potentially result in limited credit access and investments in certain areas.

Financial inclusion. The responsible implementation of AI and AIS could make financial services more accessible. This can improve consumer experience and boost their financial well-being. This may increase economic activity and overall growth.

Regulatory balancing act. The economy now requires a careful balancing act. Regulations must protect consumers while promoting financial inclusion. However, if these rules are too strict, lending could be hampered, and economic growth could slow. On the other hand, a lack of restrictions may put financial stability at risk.

Uncertainty and opportunity. Since all these patterns are influenced by a number of variables, including inflation, geopolitical developments, and governmental acts, their future effects are yet unknown. However, in order to adapt and prosper in this shifting economic environment, businesses, policymakers, and individuals should understand them and their possible implications.

Final Thoughts

The new year is expected to be marked by rising interest rates, evolving regulations, and the emergence of transformative technologies. While challenges like slower growth and potential credit access limitations exist, opportunities for financial inclusion, empowered consumers, and a more data-driven lending ecosystem are also on the horizon.