Consumer Credit is Positioned for a Strong Recovery as the Country Reopens

Despite the turbulence of the last year due to the COVID-19 outbreak, the consumer credit market is poised to make a strong recovery.

As detailed in the just-released Q1 2021 TransUnion Industry Insights Report, consumers are performing well one year since the pandemic began, and both serious delinquency rates and consumer credit balances remain low. These recent trends have been buoyed by government and lender programs, which have provided the market with significant levels of liquidity.

Serious delinquency rates since the beginning of the pandemic

*Delinquency rates are measured as 60+ days past due for auto and unsecured personal loans; 90+ days past due for credit cards and mortgages.

Loan activity has also been improving over the past two quarters. For example, credit card originations rose to 12.3 million (Q3 2020) and 15.5 million (Q4 2020) from the lows observed in Q2 2020 (8.6 million).

While credit demand will likely continue rising, delinquency rates may be pressured as an increasing number of accounts exit accommodation programs. Mortgage accommodations, which currently stand at 4.55%, will significantly impact the consumer wallet as these programs begin expiring this summer.

Percent of accounts in accommodation status since peak levels

**The peak in accommodations occurred in May 2020 for credit cards and mortgages and June 2020 for auto and personal loans. 

Still, the overall outlook remains promising. “As we near the first half of the year and more of the country opens, there’s a strong sense that pent up demand for new loans will lift the consumer credit market even higher,” says Matt Komos, Vice President of Research and Consulting at TransUnion.

For more information about the report, please register for the TransUnion Q1 2021 IIR Webinar. Additional resources for consumers looking to protect their credit during the COVID-19 pandemic can be found at transunion.com/covid-19. Read on for more for more specific insights about auto loans, credit cards, mortgages and personal loans. 

Consumer credit trends in the credit card sector: Q1 2021

Despite a decline in overall originations and new accounts, consumers with access to a credit card increased 2.1% in the last year to 188 million, a continuation of a 10-year growth trend. At the same time, credit card balances continued to decline as many consumers used stimulus payments and income tax returns to pay down those debts.

• Total balances dropped to $688 billion from $814 billion
• Average consumer credit card debt per borrower dropped to $4,791; the lowest level since 2009 when TransUnion began measuring this variable
• Total credit card originations fell nearly 18% year-over-year across all credit risk tiers, with average lines on new accounts declining 28% in the same timeframe
• Serious consumer-level delinquency rates (90+ days past due) dropped to 1.25% in Q1 2021, down 72 basis points from one year ago. The drop is likely due to an elevated number of accounts in accommodation status and consumers protecting this credit product during the pandemic 

Our view: Origination activity is slowly returning to normal levels, and we anticipate increases starting this summer as the country opens and lenders loosen up a bit. While we expect serious delinquency rates to rise as accounts come out of accommodation status, we do not expect it to impact the market materially because the percentage of delinquent borrowers is low.

Q1 2021 credit card trends

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

Consumer credit trends in the mortgage sector: Q1 2021

Mortgage origination volume increased to more than 4 million in Q4 2020, 73% higher than at the same time last year, and the highest quarterly volume recorded since TransUnion began tracking the metric in 2011.

• Refinancing made up 53% of the share compared to 47% from purchase, whereas one year earlier, refinance constituted 43% of share compared to 57% for purchase
• Mortgage and rate and term refinancing rose significantly in the last year with purchase up 42%, and rate and term refinance increasing 160%
• Cash-out refinance also increased 64% from the previous year
• Serious mortgage delinquency rates continued to decline, falling from 1.03% in Q1 2020 to 0.74% in Q1 2021, the lowest level observed in at least 10 years, partly driven by the elevated percentage of accounts in accommodation status

Our view: Low interest rates are driving high demand against record low inventory, which is increasing home values. That’s creating opportunities for homeowners to refinance and conduct cash-out refis. We anticipate delinquency rates to move higher once accounts come out of accommodation, but we also expect many consumers to do all they can to make payments and protect the equity in their homes.

Q1 2021 mortgage trends 

*Delinquency rates are based on data reported to TransUnion.

**Originations are viewed one quarter in arrears to account for reporting lag.

Consumer credit trends in the personal loan sector: Q1 2021

Personal loan originations continued to decline on a year-over-year basis, though declines in such loans and new account balances are becoming less steep in more recent quarters. The decline in originations activity was most evident within FinTechs and bank lenders.

• Originations were down 20% on a year-over-year basis, largely because lenders in this space are still focused on prime and above borrowers
• Total balances fell for the fourth consecutive quarter (led by 10%+ declines in the below prime tiers), while super prime borrowers experienced a 6.3% increase in balance growth during the same timeframe
• Serious delinquency rates dropped 73 basis points in the last year and now stand at 2.66% as of Q1 2021, with the percentage of accounts in accommodation status the primary reason for the major decline 

Our view: Consumer demand for personal loans will likely be dampened in the next few months as stimulus payments and tax refunds eliminate the need for such funds. We do expect to see more activity as states and more consumers seek personal loans to finance vacations and other large purchases.

Q1 2021 unsecured personal loan trends 

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

Consumer credit trends in the auto sector: Q1 2021

The broader auto finance market continued to largely recover in Q1 2021 with average debt per borrower topping $20,000 for the first time since TransUnion began tracking the variable.

• Overall delinquency rates continue to rise but appear to be at manageable levels
• Serious delinquency rates increased, moving to 1.51% from 1.37% one year earlier, marking the ninth time in the last 10 quarters a year-over-year increase in serious delinquencies has occurred
• Originations continued to recover in Q4 2020, though at a slower rate than Q3

Our view: Fewer loans originated to borrowers is driving the slowdown and impacting the auto industry more so than any other credit product. While their performance continues to lag the overall market, we’re cautiously optimistic the combination of additional government stimulus, expanded vaccinations, falling unemployment and tax refund season will result in a rebound in subprime originations in Q1 2021 and beyond.

Q1 2021 Auto Loan Trends

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

For more information about the report, please register for the TransUnion Q1 2021 IIR Webinar.