Finance companies have seen borrowing costs skyrocket this year as interest rates rise.
That’s according to a report Sunday (Dec. 11) by The Wall Street Journal, which notes these companies are paying as much as four times the amount they paid in January to borrow the cash they lend to companies.
And that’s led these companies to cut back on lending or charge more for loans, putting more pressure on an already stressed economy. Among the biggest losers: FinTech lenders, car dealers, buy now, pay later (BNPL) firms, and mortgage companies. These non-bank lenders, without deposits to loan out, are particularly vulnerable to rising interest rates.
We’ve noted a number of signs of this stress recently. Last week saw the release of findings from a survey by Cox Automotive Dealers that showed U.S. auto dealer sentiment at its lowest level since the start of the COVID pandemic.
The survey — compiled from interviews with 1,034 car dealers — found the dealer sentiment index at 43, below the threshold of 50, a sign that more dealers see the car market as weak than those who see it as strong.
Consumers are also pessimistic, PYMNTS research has found, with Americans at every income level expecting the current economic instability to stick around at least until spring 2024. That means fewer big-ticket purchases, which means less borrowing.
“Americans are resilient,” PYMNTS wrote last month, “but borrowing costs are growing, which has driven a shift in focus from items like large appliances and cars to the simple necessities of daily life.”
More recent research has shown that consumer perception of price increases is far more severe than that the government has reported. Americans have reported that they believe the cost of many consumer staples has risen by 25% or more. The crucial gasoline price is perceived by Americans to have climbed by a staggering 42.9%.
Meanwhile, this ongoing perception and its corresponding paycheck erosion have made American consumers increasingly nervous about the economic situation — with 72% reporting that they are “very or extremely” worried about the U.S. economy.