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Forecasting 2021: What’s in Store for US Consumer Credit Markets in the Coming Year

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For the consumer credit market, 2020 has proven quite tumultuous. The year started off normal enough, but the COVID-19 pandemic quickly threw things off kilter. The exception was the mortgage industry, which benefited from all-time low interest rates, but otherwise, we saw fewer originations across all sectors. Now, it’s time to look ahead — and we think the market is poised to bounce back in 2021.

For analysis you can’t get anywhere else on the direction the industry is headed, watch the webinar that provides even more insights.

Here are just a few highlights from our 2021 forecast.

Q2 will be a barometer of how well things are going

In the second quarter of 2020, lending slowed dramatically for unsecured credit products, such as personal loans and credit cards, but we anticipate the opposite in Q2 of 2021. Barring any unforeseen shocks to the economy, we foresee robust growth at the beginning of Q2. In fact, we predict new originations will return to pre-COVID levels, with credit card and personal loan volumes expected to rise at the greatest rate.

Forbearance programs are still a question mark for the mortgage industry

While the economy’s recovery rate, as well as government programs and lender accommodations, will play a significant role in mortgage loan growth, we do expect origination activity to slow from 2020 growth. Refinancing will continue at a slower rate, and first-time homebuyers will comprise the majority of purchase borrowers, though their share is expected to drop from a 70% high that occurred early in 2020.

We expect delinquency rates to remain flat into 2021, after a slight uptick in Q4 of 2020. That said, many mortgage borrowers will start the year in accommodation programs, and mortgages aren’t considered delinquent while in forbearance. As those programs expire, we expect delinquencies to climb from historic lows, but by April and May, mortgage accounts in forbearance will decline sharply. 

Credit card originations will rise — but consumers may not be quick to use them

Credit card originations reached a 10-year low in Q2 2020, but with expected improvements in unemployment and GDP growth, we anticipate a 64% year-over-year increase in origination volume during the first half of the year as card issuers look to ramp up business again.

With economic uncertainties still swirling, consumers will continue to spend less, and total card balances will continue to drop. That will fuel strong performance, as delinquencies will remain lower than 2019 levels, and severe credit card delinquency at the end of 2021 is not expected to exceed 1.3%.

The consumer lending market could return to record levels

We project a steady recovery driven by decreasing unemployment and consumer demand for unsecured installment loans, and originations will trend upward through 2021, inching back near 2019’s record levels. Q1 loan volumes are expected to reach 3.3 million, but in the second quarter, originations are expected to grow to 4.2 million — well above the 2.6 million observed in the second quarter of the pandemic. This activity, however, still remains below the 4.8 million originations reported in Q2 2019. Delinquencies will increase slightly as forbearance periods start to expire.

Auto loans will be buoyed by lower-risk consumers

New auto sales suffered a double-digit decline and negative growth rate throughout the first half of 2020, but we expect that to flatten in 2021. Additionally, we predict healthy origination activity in Q1 and Q2 2021, with 6.8 million and 7.4 million new accounts, respectively. As auto lenders look to rebound, originations will shift to the prime and above risk tiers. As subprime originations decline, the total share of non-prime balances is expected to gradually decrease. Performance should also stabilize, even as auto accommodations continue to decline, as many consumers prioritize auto payments more so than other credit products.

If you’re looking for additional insights to drive strategic business decisions next year, watch the webinar for expert perspectives.

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