Household budgets are shrinking but personal loans are on the rise

The latest reports from Commonwealth Bank reveal that household spending is declining month on month, with Aussies starting to feel the impact of rate rises on their everyday budgets. This could be one of the many reasons we’re seeing an increase in personal loan commitments, with a 9.5% increase seen in the most recent statistics from the Australian Bureau of Statistics (ABS). 

Why are households spending less?

If you felt no impact from the initial Reserve Bank of Australia (RBA) decision to begin hiking rates upwards, you might be wondering when that shift towards penny-pinching really started. 

The Commonwealth Bank data backs this up, indicating the first monthly fall since the RBA began bringing rates up earlier in the year. Falls were seen in spending across home buying, health and fitness, household services, and transport. 

In actuality, it usually takes about three months for consumers to feel the full effect of rising rates, so what we are experiencing now is a cumulative impact that will only keep hitting.

At the same time, we are experiencing what many refer to as a “cost of living crisis”. While rate rises do contribute to the rising Consumer Price Index (CPI), there are many other factors at play. These include geopolitical unrest, supply chain holdups, and labour shortages.

Considering the rising prices of our grocery carts, energy bills, and even our fast food treats, it’s no surprise that Aussies are choosing to prioritise keeping costs down where they can.

Meanwhile, year-on-year household spending is still up, according to ABS statistics. This is more likely a reflection of last year’s pandemic conditions, rather than this year’s amazing financial climate. In fact, according to Westpac, consumer confidence is reaching nearly historic lows.

What does the rising popularity of personal loans tell us?

In order to keep on top of these rising costs, personal loans are apparently becoming an even more popular way for people to stay on top of their expenses. 

Since the average unsecured personal loan has no restriction on where money is spent, these are a desirable alternative to other forms of credit. 

Personal loans may carry lower interest rates than comparable credit cards, making them preferable when it comes to larger amounts that can’t be paid off in a monthly billing period. Note that credit cards offer interest free days and many have introductory interest free periods, making them still worthwhile for many occasions - but you’ll have to choose carefully!

Aussies may be having an easier time acquiring these loans as well, with relatively stable credit scores in spite of the past years of financial uncertainty. 

Make sense of lending with our guide to easy personal loans and some tips to busting debt before 2023. To find our expert favourites, read up on Mozo’s best personal loans.