Revolving Credit Surge Hints at Split Payments’ Continued Appeal

Debt continues to mount — and at an accelerated pace, per the Federal Reserve’s latest tally on consumer credit.

Within that growth likely lies a continued use of card installment plans.

Consumers’ total outstanding credit increased by $14.1 billion in February, tied to an annualized growth rate of 3.4%, the Fed said. But drilling down into the data, there’s a bit of a diverging path. Revolving credit accounted for $11.3 billion of the increase and boomed at an annualized 10.2% rate, accelerating from the 7.8% pace seen in the previous month and 3.8% seen at the end of last year.

Revolving debt includes credit cards. The latest detail on interest rates on credit cards showed a 21.6% interest rate in February, up from 21.4% at the end of last year and above the 15% rate seen before the pandemic.

The embrace of revolving debt, growing at double-digit percentage points, was higher than the 0.9% annualized pace that had been recorded in February for non-revolving debt such as student loans.

At the same time, delinquencies are increasing, across the board as reported by VantageScore last year.

PYMNTS Intelligence reported that found that 60% of shoppers overall opted for split payment options in the last year. General-purpose card installment plans were the most popular, with 45% of consumers going that route. Merchant card installment plans appealed to 37% of consumers.

In the meantime, the data shows that various stakeholders in the card realm are on board with increasing their installment offerings. As many as 97% of acquirers that process transactions can split payments on cards that they issue. And 60% of them are planning to enhance those installment offerings in 2024.

Broad Appeal Across Income Levels

General-purpose card installment plans are used across income levels, as roughly half of households earning more than $100,000 annually opted to use those plans, and 45% of consumers earning between $50,000 and $100,000 each year did the same. The numbers decline slightly for a respective 44% and 35% for those income levels when it comes to merchant card-based installment plans.

Separately, PYMNTS found that there’s a recognition that installment options — and paying over time, which establishes a track record of timely payments — can show lenders that borrowers are responsible when it comes to credit use.

The trend is particularly prominent among millennials and bridge millennials, with 40% and 36% of them, respectively, using installment plans for this purpose, which outpaces the 33% of the overall population that does so.

Within PYMNTS’ findings, general-purpose credit card installment plans are the most popular plans used for boosting credit scores at 27% of the respondent population, followed by merchant or store card installment plans at 23%.