Inflation also affects the consumer credit market

Inflation averaged 5.2% for the whole of 2022, impacting the consumer credit market. Credit companies are seeing an increase in non-payments and requests for deferrals. Inflation is affecting all sectors, including consumer credit.

Credit habits have changed

A consumer credit, granted to individuals by banks or financial institutions, is used to purchase consumer goods such as household appliances, vehicles, furniture, etc., or for cash flow purposes. Credit amounts and terms vary. The sums lent by the various organizations range from 200 to 75,000 euros, and the repayment period is always longer than 3 months.

There are various types of credit, including :

  • Affected credit, intended to finance a specific good, supported by an invoice.
  • The personal loan, allowing the purchase of any goods or services without receipts, and whose amount is defined in advance and cannot be modified.
  • Revolving credit gives you the freedom to finance everyday expenses.
  • Lease with option to buy or LOA, mainly used in the automotive sector, this credit allows you to have a vehicle without buying it at first, by paying monthly rents, and to buy it or return it at the end of the lease.

During the health crisis, the French built up a stockpile of savings, which they were tempted to keep for a possible future downturn in their purchasing power.

As a result, more and more people are turning to consumer credit to keep their savings intact. The French banking federation reports that 45% of households held at least one loan in 2021, and not just a mortgage. Consumer credit grew by 3.1% year-on-year from 2021 to 2022.

This type of financing is further boosted by record inflation. While some consumers turn to credit as a way of conserving their savings, others do so out of obligation, because they don't have the money available to finance their purchases.

The dangers of consumer credit

Faced with the rising cost of living, some consumers are attracted by loans, which financial institutions often present as a miracle solution for buying essential consumer goods like a car, or simply useful items like a washing machine.

But this practice can be dangerous if left unchecked. You soon find yourself with your head under water, especially when you have to take out a new loan to pay off the first. It's something to be avoided at all costs if you don't want to end up crumbling under debt.

Is inflation the cause of an upsurge in non-payments?

The high inflation we are experiencing is weighing on a growing number of households. It is certainly the cause of an upsurge in non-payments. According to theAssociation française des sociétés financières (ASF), the credit market is beginning to feel the adverse effects of rising prices.

When a borrower takes out a revolving credit to buy a car, for example, he or she is sometimes forced to dip into it for other reasons, even simply to pay for day-to-day expenses. Debts pile up. He enters a downward spiral. He can't pay back the money, and finds himself in an even more precarious situation.

What are the solutions for borrowers?

There are a number of ways to get out of this predicament: renegotiate the interest rate, ask for an extension on repayment, or postpone repayments. It's this last solution that we've been seeing a lot of lately.

The courts may grant a suspension of repayments without any surcharges or penalties. To do this, you'll need to build up a solid case and take the matter to the appropriate court. If the difficulties are really serious and long-lasting, it is preferable to file for overindebtedness.