The sudden economic downturn resulting from the COVID-19 pandemic led to an abrupt decline in demand for consumer credit in Germany. Driven by the economic context, consumer credit immediately suffered from a significant drop in consumer confidence and the propensity to purchase big-ticket items via loans.
Consumer uncertainty and hesitation following the COVID-19 pandemic became particularly obvious in the declining demand for new cars, often purchased via loans. Therefore, in 2020, auto lending, as one of the biggest lending categories in terms of value, recorded a significant drop in gross lending compared to 2019.
As part of a stimulus package to counter the economic impact of the COVID-19 pandemic, the German government introduced a temporary cut in value-added-tax (from 19% to 16%, with the reduced rate falling from 7% to 5%) to boost domestic demand and spur consumer confidence. Announced to only be in place in the second half of 2020, the measure provided an incentive to take out loans for major purchases, thereby somewhat mitigating the economic downturn and declining demand for consumer credit.
The development of consumer credit in 2021 and beyond depends heavily on the pace and degree of economic recovery. Despite the severity of the recession, Germany’s unprecedented and comprehensive stimulus programme, worth roughly EUR130 billion and introduced in response to the economic fallout of the pandemic, is expected to safeguard jobs and boost demand.
In an environment of low interest rates, particularly since the European Central Bank set its base interest rate at 0.0% in 2016, banks in Germany have recorded revenue losses and therefore increasingly focused on the lucrative consumer credit business.
The COVID-19 pandemic fuelled consumer awareness and interest in digital solutions in daily life. This also accelerated the already existing trend towards digital financing offers, which is reflected in the surging number of loan agreements completed, at least partly, online.
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This report originates from Passport, our Consumer Credit research and analysis database.
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