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2020 Predictions: Consumer Credit, Balance and Delinquency Rates

Matt Komos
Blog Post12/23/2019
Business Research
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Another year is coming to a close, and now is the ideal time for lenders to look forward to 2020 and the opportunities the new year may bring. To help lenders prepare for a successful year ahead, TransUnion has put together our annual consumer credit forecast for the auto, credit card, mortgage and personal loan markets.

In the report, we take a look back at the 2019 consumer credit market and how it performed against our 2019 forecast. We also offer our predictions for consumer debt levels, originations, delinquency rates and credit performance in 2020.

Overall the U.S. consumer credit market is set to do well in 2020, buoyed by low unemployment rates, continued growth in GDP and high consumer confidence. We project serious delinquency rates will either decline or remain about the same for auto loans, credit cards, mortgages and unsecured personal loans.

Five-Year Trend Shows Serious Consumer Delinquency Levels Continue to Remain Low**

Credit Product Q4 2020* Q4 2019* Q4 2018* Q4 2017* Q4 2016*
Auto Loans 1.44% 1.47% 1.44% 1.43% 1.44%
Credit Cards 2.01% 1.99% 1.94% 1.87% 1.79%
Mortgage Loans 1.47% 1.54% 1.66% 1.86% 2.28%
Unsecured Personal Loans 3.04% 3.31% 3.63% 3.29% 3.83%

* Projections; **Serious mortgage, auto loan and personal loan deliquencies are defined here as those with payments 60 or more days past due. Serious credit card deliquencies are defined as those with payments 90 or more days past due.

Additionally, both balance and originations activity are expected to grow for most key credit products.

We recommend that you watch the recording of the 2020 Consumer Credit Forecast webinar for in-depth analysis, but here are some key takeaways from the report.

1. Credit card performance will remain strong

Originations in the credit card market are expected to slow in 2020, with most of the growth coming from the non-prime risk tiers. Despite the origination growth from the non-prime risk tiers, we predict that 2019’s strong performance in the credit card market will continue through 2020. The Q4 2020 delinquency rate is expected to flatten at 2.01%, well below post-recessionary levels, as the balance mix by risk tiers are expected to remain stable. As delinquencies flatten, the average consumer balance is expected to grow, albeit at a slower rate than last year.

“We anticipate that the credit card market will be well-positioned from both a performance and growth standpoint as card issuers balance risk across their portfolios,” says Paul Siegfried, senior vice president and TransUnion’s credit card line of business leader.

“Despite the origination growth from the non-prime risk tiers, we predict that 2019’s strong performance in the credit card market will continue through 2020. The Q4 2020 delinquency rate is expected to flatten at 2.01%, well below post recessionary levels, as the balance mix by risk tiers are expected to remain stable.”  Also, delinquencies are expected to be slightly increased for Card so we should reword the last sentence.

2. Personal loan volumes will remain healthy

Unsecured personal loan originations will continue to grow in 2020 — approximately 6% compared to last year. The growth will be driven by debt consolidation and home improvement loans taken out by prime and above risk tiers. Both loan types point to higher loan amounts, and the total balance is expected to reach $180 billion.

“As lenders continue to shift slowly up market, delinquencies will continue to remain relatively low and stay around 3%. While this may be reflective of the loan mix, it also may reflect our findings that personal loans that are used for debt consolidation tend to perform well as consumers gain more control over their finances,” says Liz Pagel, Senior Vice President and TransUnion’s consumer lending line of business leader.

3. New car sales will take a hit

Higher gas prices, a looming threat of auto tariffs and rising vehicle prices are driving up concerns of affordability and driving down new auto sales, a trend that will continue through 2020. To offset the costs, consumers will increasingly be looking for extended loan terms, creating opportunities for lenders.

Despite challenges, loan performance in the auto industry remains strong. The share of originations in the prime and above risk tier will remain steady at 66.5%. Additionally, “we expect the auto delinquency rate to decrease at a higher rate on a year-over-year basis during the first half of 2020. Serious delinquencies are expected to slightly decline at the end of next year,” says Satyan Merchant, Senior Vice President and TransUnion’s auto line of business leader.

4. First-time homebuyers will spark mortgage activity

Home prices are still rising, but the rate of increase is slowing. That coupled with low unemployment, rising wages and low interest rates is paving the way for first-time home buyers to enter the real estate market. Overall originations are expected to drop, relative to 2019, but first-time homebuyers will offset some of the decline.

Also on a positive note, because mortgage has remained a largely prime and above product since the recession, the historical lows in delinquency rates will remain through 2020, with serious delinquency rates staying under 1.5%.

As we start a new year, we hope these consumer credit insights help to guide your strategies and planning for 2020. Historically, our forecasts have been very close to the actual auto, credit card, mortgage and personal loan delinquency and balance trends.

For more information about the 2020 TransUnion forecast and to register for a webinar providing detailed projections and information on the quarterly Industry Insights Report, please click here

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