Personal loan drawdowns in Ireland experienced a significant surge in the first quarter of this year, defying expectations set by interest rate hikes aimed at curbing borrowing and reducing inflation. According to a report released by the Banking and Payments Federation Ireland (BPFI), the number of personal loans increased by almost 28% compared to the same period last year, reaching a value of €481m, a 25% rise.
This report suggests that consumers are seeking loans for recreational spending, as the cost-of-living crisis has put pressure on savings following the Christmas season. The data also revealed a rise in car and home improvement loans. The number of car loans drawn down increased by 27% year on year, amounting to over 15,000 loans worth €187m. The value of these loans rose by almost 40% during the same period.
Similarly, personal lending for home improvement rose by 29% year on year, with almost 14,000 loans worth €147m being drawn down. This represents the highest volume and value of personal lending in these areas since data collection began in 2020. BPFI chief executive, Brian Hayes, highlighted the growth in loans for other purposes such as holidays and special occasions, with the number of loans for education, holidays, and special occasions rising by 27% to 20,119, and their value increasing by 18% to €146m.
The average value of loans decreased by approximately €200 to €9,763, the lowest level since the final quarter of 2021. However, the average value of car or auto finance loans increased by €1,073 to €11,678. This rise is believed to be due to increasing car prices and the growing popularity of electric and plug-in hybrid vehicles.
Additionally, loans for home environmental improvements or to enhance energy efficiency, known as green loans, also experienced a rise in the first quarter. The value of green personal loans increased by 95% compared to the same period the previous year, reaching €20m. The number of green loan drawdowns increased by 82%, despite the rising costs. The average green loan amount reached €22,486, significantly higher than the average for all loans at €9,763.
The report does not provide clarity on whether the European Central Bank (ECB) will impose another interest rate hike in September, which could further strain household finances. The BPFI represents the banking, payments, and fintech sector in Ireland. It consists of approximately 125 member institutions and associates, including licensed domestic and foreign banks operating in the country’s financial market.