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CUDA Comments on CBI Financial Stability Note on the Consumer Credit Market

By March 25, 2024News

The Central Bank today published their Financial Stability Note on the Consumer Credit Market, which provides some very interesting insights to the non-mortgage consumer credit market in Ireland.

Commenting on the overview report, Kevin Johnson, CEO of the Credit Union Development Association (CUDA) stated

“This morning’s report shows that credit unions collectively are the main lender for personal loan products. This is not a surprise to us – lending is strong across the credit union sector, particularly for home improvements and car loans. Credit union lending rates are particularly competitive as they are not impacted by elevated ECB rates. Credit unions are also very must trusted by consumers – in 2023, they topped the table for the best customer experience (the CX Customer Experience report) in Ireland for nine years running.

It is interesting that this morning’s Financial Stability Note from the Central Bank shows that demand for consumer credit has remained strong, despite the ECB starting to raise interest rates in 2022. The report also shows that the pass through of interest rate increases to new consumer loan rates has been more muted in Ireland than elsewhere in the euro area and we believe that the predominance of credit unions in the personal loan market is one of the main reasons for this.

This morning’s Note shows that the non-mortgage consumer credit market is a significant one, representing over one-tenth (12pc) of all household credit in Ireland.

It’s not surprising to us that one-third of consumer credit drawn down between 2020 and 2023 was to finance motor vehicles, and a further one-third was for home improvements. We would urge consumers however to be careful in their choice of motor finance. In our experience, the most popular car financing option is a personal loan from a bank or credit union. Personal Contract Plans (PCPs), a type of car finance available largely from car dealers, have also become popular in recent years. We would always advise consumers that their best option for car finance will depend on their own circumstances, but they should remember that under PCP or hire purchase agreements, they do not own the vehicle until they have made their final loan payment. This however is not the case with personal loans.

This morning’s note also finds that consumer credit loan arrears are declining at credit unions. This again we believe is testament to the competitive interest rates available from credit unions – and the work that credit unions do with any customers who may run into difficulties repaying their loans.”