Consumer credit: Who’s applying for loans now?

Recent results from the ECB’s Consumer Expectations Survey (CES) show a substantial increase in the share of consumers who applied for credit. This may seem surprising as currently borrowers have to pay higher interest rates and banks are providing less credit than in previous years. What are the main drivers behind this dynamic? CES microdata suggests there have been significant shifts in the composition of consumer groups applying for credit. Higher-income consumers now apply for new loans less often, while lower-income households apply for them more often, in particular consumer credit. In turn, banks now reject a higher share of applications. This post discusses what this new makeup of the credit application pool means for the interpretation of banks’ tightening of credit standards and credit issuance to households.