After the collapse of the Silicon Valley Bank, the Federal Reserve warned that the recent upheaval in the banking sector will likely lead to tighter credit conditions for individuals and businesses. Below we’ll go over some the effects the current state of the banking sector is having on loans and credit card debt.

Credit Availability

Periods of instability and disorder in the banking sector can influence the availability of credit. Banks typically become more cautious in lending, leading to tougher criteria for loan approvals. This can make the process of acquiring new loans or credit cards challenging, especially if you don’t have a strong income or credit history.

Interest Rates

Fluctuations in the banking sector can affect interest rates, which can have ramifications for loans and credit card debt, resulting in higher borrowing costs. Borrowers with variable rate loans or credit cards tied to the prime rate may see an increase in interest rates. This can cause higher monthly payments and potentially more expensive debt.

Loan Terms and Conditions

When the banking sector is experiencing upheaval, lenders may review and revise their loan conditions, which could affect terms like repayment schedules and interest rate structures. Be sure to keep up with any changes to loan agreements so you can adjust to new terms if necessary.

Credit Card Fees and Rewards

Financial institutions may adjust fee structures or modify rewards programs in response to disorder in the banking sector. In fact, the average cash back bonus is down 1.86% since the end of 2022, and miles or points are down 0.34%.

How Are Consumers Managing in This Economy?

Due to a strong labor market, the effects of inflation and a slowing economy haven’t been as severe as they could be, but with rates continuing to rise and the banking sector in upheaval, signs of consumer stress are beginning to show. Balances and rates are up, and more people are carrying credit card debt.

By the end of last year, credit card balances had risen to $986 billion, which is the highest registered since 1999 (the year the Federal Reserve began collecting this data). The amount of consumers who carry over a credit card balance from month to month also increased to 35%, up from 29% last year.