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New personal lending bounces back in May as vehicle loans jump

New personal lending bounces back in May as vehicle loans jump

New personal lending saw a rebound in May for the first time this year, fresh data from the Australian Bureau of Statistics (ABS) show.

The value of new personal loan commitments surged by 14.5 per cent to $1.43 billion in May, up from $1.25 billion in April. 

This followed a steep plunge of about 25 per cent in April, which was its biggest recorded monthly fall in nearly two decades. The ABS attributed the sharp decline to COVID-19 impacts.

A loan commitment is a loan that has been approved by a lender and accepted by a borrower, according to the ABS.

However, new personal lending overall is still at low levels, the ABS noted, despite a record-low cash rate. New personal loan commitments dropped by 10.8 per cent in the 12 months to May 2020.

Personal loan refinances bumped up slightly by 5.5 per cent to more than $122 million in May. It was the first increase in refinancing since the start of the year.

But longer-term numbers show there is a growing trend for refinancing, with a nearly 12 per cent increase in refinancing over the year to May 2020.

What borrowers took out loans for in May

The increase in new personal lending was thanks to a jump in new road vehicle loans, which was up by more than 40 per cent in May. The rise in road vehicle loans followed a 37.5 per cent drop in April and came ahead of end-of-financial-year sales in June, when new vehicle sales activity saw a notable leap.

“The rise in the value of new loan commitments for fixed term personal finance was driven by a partial rebound in the value of new loan commitments for road vehicles”, ABS chief economist Bruce Hockman said.

It was not just road vehicle loans which saw an increase, loans for other transport vehicles and equipment also surged by 46 per cent in May.

But new lending for road vehicles and other transport vehicles still saw a decline over the year to May 2020, down by 13.5 per cent.

Mar 2020 ($)Apr 2020 ($)May 2020 ($)Apr20-May 20 changeMay 19-May 20 change
Total personal loans (excluding refinancing)$1.66 billion$1.25 billion$1.43 billion14.5%-10.8%
Road vehicle loans$1 billion$625 million$882 million41.1%-13.5%
Other transport vehicle and equipment loans$45 million$30.9 million$45.2 million46.2%-22.3%
Loans for the purchase of household and personal goods$119 million$103 million$94.9 million-7.8%-0.73%
Travel and holidays$20 million$2.2 million$2.1 million-4.5%-94.7%
Personal investment (excluding housing)$162 million$250 million$206 million-17.6%46.7%
Refinances$160.5 million$116.4 million$122.8 million5.5%11.6%

Source: ABS.

In particular, personal loans for travel dropped a further 4.5 per cent in May and plummeted by almost 95 per cent since May 2019. 

Lending for travel may continue to drop, with Australia’s bans on international travel not expected to be lifted until at least some time next year. Domestic travel is also taking a hit due to a resurge in COVID-19 cases in parts of Victoria, with several state borders, including that of NSW, Queensland and South Australia, recently closing to Victorians. 

Personal lending fell in every other category in May. Loans for personal non-housing investment, down nearly 18 per cent, led the falls. But it also highest rate of growth over the year with a surge of some 47 per cent, indicating the volatile nature of this type of lending.

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This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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