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) -- Massive job losses and widespread uncertainty led most American consumers to cut back on new debt during the recession, with

debit cards supplanting credit cards

as a preferred payment method and home and auto loans falling. But rock-bottom rates on the loan side are finally enticing some consumers to

resume their borrowing ways

. And some loan officers say that they're seeing increased demand for home loans as well.


The low rates have definitely sparked some activity," says Greg Patton, assistant vice president of State Bank and Trust in Columbus, Ohio. "Up through early April was as low as I've seen it, but the last three to four weeks' activity has certainly picked up."

A new metric shows consumers are choosing the right time to start borrowing again. The interest rate climate for American consumers improved for the fourth straight month in April, with the

Credit Power Index

hitting its lowest level in almost three years. As of the end of April, the index stood at 22.98, the first time it's dropped below 23 since September 2008. It also represents a month-to-month drop of 32 basis points, the biggest one-month improvement since August.

The Credit Power Index tracks consumers' banking power by comparing the gap between certificate of deposit interest rates at four terms -- 12, 36, 48 and 60 months -- and the rates on selected loan products at the same terms (personal unsecured loans, home equity loans, new auto loans and adjustable-rate mortgages). The larger the disparity between loan and deposit rates, the higher the index will be, indicating how much consumers are getting squeezed by their banks. (See

our graphic

for a full explanation of the methodology.) While the index spiked during the recession as consumer banking power eroded, it has since seen moderate improvement on the strength of falling loan rates and relatively stable deposit rates.

As in recent months

, all of the improvement in the index can be attributed to falling loan rates, further easing pressure on Americans seeking to borrow money.

"Again this month, the loan component was the lowest we have seen it since we started tracking this indicator in January of 2007," said RateWatch's chief operating officer, Bob Quinn.

Patton notes that 30-year fixed mortgages falling below 5% -- a milestone reached in late April, according to RateWatch -- was a turning point for consumers. Mark Cole, COO of the nonprofit credit counseling group CredAbility, points to consumer confidence as the big factor in determining whether they begin to borrow again.

"People aren't going to take on new debt when they're uncertain about what their financial future looks like," he says. "Those comfortable about their employment situation, those people are borrowing."

Mortgages aren't the only products becoming more attractive to consumers. Indeed, loan rates fell across the board: Interest rates on personal unsecured loans fell a whopping 16 basis points to 12.52%, the lowest for that product since RateWatch began tracking the Credit Power Index in January 2007. Meanwhile, 36-month home equity loans dropped 14 points to 6.57%, matching the low point set in December. While that average had shown signs of creeping back above 7%, it seems that it's still a great time to tap the equity in your home,

assuming you're able


New auto loans likewise continued a steady decline, hitting a low of 4.81% for 48-month loans in April. Only five-year adjustable-rate mortgages stayed fairly stable, dropping just a single basis point to rest at 3.72%. That's up from the rock-bottom low of 3.42% reached in October, but still way down from pre-recession levels, when the five-year ARM peaked at close to 8% in August 2007.

The news on the deposit side was not so sunny for consumers: Interest paid on 12-, 36- and 48-month certificates of deposit all fell a single basis point last month, and 60-month CD rates were unchanged. As of the end of April, the average rate on a 12-month CD stood at just 0.51%, inching ever closer to paying out less than half a percentage point of interest. Indeed, the rate has fallen or stayed the same every month since August 2008.

Even as falling loan rates continue to make things easier for consumers seeking to borrow money, those looking to save are finding the interest rate climate as dismal as ever.

As for regional trends, all four regions of the U.S. saw their local index figure improve along with the national average in April, with the Central region dropping 45 basis points and the Eastern and Southern regions seeing more moderate improvements. The big story this month was out west, however.

"The western region has traditionally had the highest Credit Power Index number over the last couple of years," Quinn observes. "Even though it remains the highest of the four regions, that region experienced a reduction of 91 basis points last month, which brings it closer to the national average."

As a general rule, Quinn says these sorts of regional variations can largely be chalked up to statistical noise on a month-to-month basis, and it's hard to believe this is the beginning of a radical improvement in the West's fortunes. Still, in a month that saw the national average improve by leaps and bounds, it's encouraging to think that the volatile and underperforming western region is leading the way out of the credit crunch.

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