Consumer Credit Origination, Balance and Delinquency Trends: Q4 2018

As 2018 ended, the FinTech revolution propelled personal loans to another record-breaking quarter, according to TransUnion’s Q4 2018 Industry Insights Report. Personal loan balances increased $21 billion in the last year to close 2018 at a record high of $138 billion. Much of this growth was driven by online loans originated by FinTechs.

Similar to the personal loan market, we continue to see solid performance by consumers securing auto loans, credit cards and mortgages. Consumers continue to have a strong appetite for credit. While serious delinquency rates are rising for some products, they remain at or near historic low levels overall.

Personal loan originations increased 21% during Q3 2018.* Here are three key findings from the Q4 2018 Industry Insights Report:

• Q3 2018 marked the fourth consecutive quarter annual personal loan originations increased by more than 20%
• While the subprime risk tier grew at the fastest rate, prime and above-prime originations (those with a VantageScore 3.0** of 661 or higher) represented 36% of all personal loan originations*
• More than 19 million consumers now have a personal loan ­product, an increase of 2 million from a year earlier in Q4 2017 and the highest level ever observed

FinTechs have helped make personal loans a credit product that is recognized as both a convenient and simple way to secure funding online in a matter of minutes. FinTech loans now comprise 38% of all personal loan balances, the largest market share compared to banks, credit unions and traditional finance companies. Just five years ago, FinTechs accounted for just 5% of such balances. As a result of FinTech entry to the market, bank balance share decreased to 28% from 40% in 2013, while credit union share has declined from 31% to 21% during this time.

Consumers still love their credit cards, and as 2018 closed, the number of consumers with access to a credit card increased to a record 178.6 million. Here are three trends we observed about credit cards:

• Four million more individuals gained access to credit cards over the last four quarters.
• Card balances grew by 4.9% year-over-year, with growth occurring across all risk tiers for the 19th straight quarter. Super prime card balances grew 6.8% year-over-year and subprime balances grew 7.2%.
• The serious card delinquency rate rose to 1.94%, however, this remains well below recession-era levels and near the “new normal” mark.

Balance growth was highest at opposite ends of the risk spectrum, with super prime balance growth attributed to an increase in the number of super prime consumers with access to a credit card. However, subprime continues to be an area of focus within the credit card sector, as subprime was a driver of origination, balance and delinquency trends this quarter.

Auto loan originations – viewed one quarter in arrears – grew by 0.5% in Q3 2018, after a steep decline in Q3 2017. Other takeaways from the report:

• Even with a slight increase in subprime share, the auto origination mix continues to shift toward the above-prime segments, with the prime plus and super prime share together increasing 0.9% year-over-year
• Total auto balances grew at a slowed rate of 4.6% year-over-year, the lowest Q4 year-over-year increase since 2011
• Auto delinquency rates have remained stable with little to no change across most risk tiers

Steady auto delinquency rates continue to highlight the underlying positive health of the auto finance market despite potential headwinds, such as auto tariffs and additional interest rate increases. We expect demand for new vehicle sales to continue to soften in 2019. Even as lenders continue to make credit available to subprime borrowers, we expect them to balance this demand with continued originations to lower risk borrowers.

Serious mortgage delinquency rates have continued to remain low, with a decrease of 1.66% of borrowers past due in Q4 2018, down from 1.86% at the same time last year. Here are couple of key findings about mortgages from the Q4 2018 Industry Insights Report:

• Though the overall origination risk mix remained largely stable with subprime originations comprising less than 4% of originations, mortgage originations to subprime borrowers increased 2% year-over-year, a growth trend
• The average mortgage debt per borrower rose to $206,922 from $201,736 in Q4 2017

A potential change in the mix of mortgage originations in high-priced MSAs and low-priced MSAs could be contributing to a decrease in new account balances. Of the top 20 MSAs, those with an average new account balance of more than $270,000 declined 17% year-over-year in originations, while those with an average new account balance of less than $270,000 saw only a 2% decline in year-over-year in originations.*

We continue to monitor the credit market for any changes, and we will likely have a better understanding of the full impact of the federal government shutdown next quarter. Financial institutions can use these consumer credit trends in originations, balances and delinquencies to guide their strategies. To hear more about these trends, view our TransUnion Q4 2018 Industry Insights Webinar.

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

**VantageScore^® 3.0 risk ranges: Subprime = 300–600, Near prime = 601–660, Prime = 661–720, Prime plus = 721–780, Super prime = 781+