Subprime consumer borrowing — encompassing auto loans, credit card loans and personal loans — climbed to $189 billion in the first 11 months last year, the highest total since 2007, according to a study compiled for The Wall Street Journal by Equifax
That borrowing accounted for 41 percent of total consumer lending outside of home mortgages.
The trend stems from lenders and investors seeking high yields in a low-interest rate environment. So it's no wonder that total household debt rose $306 billion, or 2.7 percent, in the fourth quarter from a year earlier to the highest level since 2010.
"We're going from an era where for many years credit was extremely tight to an era where credit is now looser," Gabriel Dalporto, chief marketing officer of LendingTree, told The Journal.
But there's danger here. Recall that the 2008 financial crisis was triggered largely by subprime mortgages going bad.
"It's good while the party lasts, but it's exposing exactly the kinds of people to a negative economic shock that you don't want to expose," Amir Sufi, a University of Chicago finance professor, told The Journal.
Meanwhile, overall global debt levels continue to rise, and that could mean trouble for economies and financial markets, according to a new report from McKinsey
From 2007 through the second quarter of 2014, global debt grew by $57 trillion, raising the global debt-to-GDP ratio by 17 percentage points to 286 percent, the study says.
"This is not as much as the 23-point increase in the seven years before the crisis, but it is enough to raise fresh concerns," the report states.
Governments in advanced economies have borrowed heavily to fund bailouts and boost demand. Private sector debt also has climbed rapidly in many countries.
"Absent additional steps and new approaches, business leaders should expect that debt will be a drag on GDP growth and continue to create volatility and fragility in financial markets," the study notes.
"Policymakers will need to consider a full range of responses to reduce debt as well as innovations to make debt less risky and make the impact of future crises less catastrophic."
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