Americans welcome back leverage when credit is cheap enough

Americans are back in the borrowing mood, and even the wealthy are getting in on it when the credit is cheap enough, according to advisers. U.S. households in November borrowed $2.48 trillion through credit card purchases, car loans and other consumer debt, according to a Federal Reserve report released yesterday. That sum is $20.4 billion above the October consumer credit level — which is the greatest jump since November 2001. The report excludes mortgages, home equity loans and other real estate loans. High-net-worth advisory clients generally don't rack up credit card debt and finance vehicles, because they tend to pay off monthly charges and write a check to pay for their cars outright. However, the current consumer lending environment is making some think twice. “They are being opportunistic with debt,” said John Waldron, founder of Waldron Wealth Management LLC, which manages about $2.6 billion in assets. “With money being so cheap, when a client wants to make an investment, you have to look for the optimal way to fund that, including the borrowing opportunities that are out there.” In some cases, it makes more sense to borrow at a low rate than to liquidate investments that may have tax consequences, such as long-term or short-term capital gains, or cash flow implications, he said. Mr. Waldron himself has benefited from an atmosphere of cheap lending. He recently took out an auto loan for a new BMW because the dealer was offering a $2,500 discount if the purchase was financed for at least six months. The dealer also offered a 0.9% rate on the loan, he said. “They were giving you money to take their money,” Mr. Waldron said. “That just made sense to take it.” Some clients of Convergent Wealth Advisors have been increasingly interested in borrowing at today's low rates to invest in real estate or businesses, said adviser Stephen Aucamp. “People are cautiously optimistic about borrowing for investing,” he said. “They are beginning to think we've seen the lows in real estate and think it's a good time to pick up another asset.” Real estate loans are an area that's still tight for some clients, however. Homeowners with solid credit ratings are finding that any instance of income instability or a slowdown in business growth — or even declining home values — can block them from getting approval to refinance. “Even well-qualified buyers aren't having an easy time of it,” said Michael Mussio, an adviser with FBB Capital Partners, which has $535 million in assets under management. “They are encountering a lot more hurdles than even a year ago.”