* 2nd-qtr earnings $1.20/shr vs est $1.15
* Credit card loan volume up 5 pct to $49.80 bln
* Personal loans increase 22 pct to $652 mln
* Card sales volume rises 4 pct
July 23 (Reuters) - Discover Financial Services' quarterly profit beat market estimates as loans increased in its credit card business and interest charges declined.
Credit card loans rose 5 percent to $49.8 billion in the second quarter while delinquency, or late payment rates for loans over 30 days, fell 25 basis points to 1.50 percent, the company said on Tuesday.
The growth in credit card loans suggested that customers were more at ease in spending than they were last year.
Discover's net charge-off rate, the percentage of loans written off as unrecoverable, fell 38 basis points to 2.34 percent from a year earlier.
U.S. consumer spending is likely to have risen 8 percent in the second quarter, compared with 7 percent in the first quarter, according to Credit Suisse.
Discover said personal loans increased 22 percent to $652 million from a year earlier. The company has been increasing its reliance on deposit funding and diversifying its lending to areas such as student loans since the financial crisis.
Net interest income, the difference between what is earned on loans and what is paid out on deposits, rose about 9 percent to $1.43 billion.
Net profit rose to $602 million, or $1.20 per share, from $525 million, or 99 cents per share, a year earlier. Revenue, net of interest expense, rose 9 percent to $2.04 billion.
Analysts had expected Discover to earn $1.15 per share on revenue of $2.01 billion, according to Thomson Reuters I/B/E/S.
The company, like American Express Co, issues its own cards and lends directly to consumers but its business is a quarter of its rival's size.
The two companies also compete with Visa Inc and MasterCard Inc to process transactions for banks.
Total interest expense fell 11 percent to $297 million, while Discover card sales volume rose 4 percent.
Discover peer Capital One Financial Corp reported a higher quarterly profit last week on strong growth in its credit card business.
Discover said its net interest margin rose 16 basis points to 9.44 percent, reflecting decreased funding costs.
"We continue to expect net interest margin to expand somewhat in the second half of the year...", Chief Financial Officer Mark Graf said on a conference call.
Loan loss provisions decreased 8 percent to $240 million, showing that the company expects fewer defaults on loans.
Discover's shares were little changed in extended trading after closing at $50.71 on the New York Stock Exchange. They have risen about 14 percent since the last quarterly results.