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Consumers Turn to Credit Cards and Personal Loans to Manage the Financial Pressures of Inflation

Understanding the Consumer Dynamics of Auto Refinance

Keeping with the trends we saw in Q2, more consumers took on unsecured personal loans and credit cards to deal with high inflation and interest rates.

According to TransUnion’s (NYSE: TRU) newly released Q3 2022 Quarterly Credit Industry Insights Report (CIIR), bankcard and private label balances both hit records highs, and unsecured personal loans experienced record growth in originations and balances during recent quarters.

Loan Growth and Balances Rising for Credit Cards and Unsecured Personal Loans

Key metrics

Q3 2022

Q3 2021

Number of credit cards

510.9 million

474.2 million

Average credit card debt per borrower

$5,474

$4,857

Consumers with access to a personal loan

22.0 million

19.2 million

Average personal loan debt per borrower

$10,749

$9,387

 

Michele Raneri, Vice President of US Research and Consulting at TransUnion, expects the trend to continue. “As long as employment numbers remain strong, there should be a steady flow of customers seeking access to new credit products, credit cards and personal loans, and an ample supply of lenders willing to offer credit to them,” she says.

An important trend to monitor: Delinquencies also rose in Q3 and were slightly higher than pre-pandemic levels in Q3 2019. The uptick in delinquency rates was driven by the general deterioration in the financial health of subprime consumers. While the rates remained in line with historical levels for most credit products, lenders are advised to monitor for similar increases among other credit risk tiers.

TransUnion’s Credit Industry Indicator (CII) remains relatively stable

Between Q2 and Q3 2022, the CII ticked up one point to 120 due to rising delinquencies across many product categories — but was still down from 126 a year ago.

The CII is a quarterly measure of depersonalized and aggregated consumer credit health trends that summarizes movements in credit demand, credit supply, consumer credit behaviors and credit performance metrics over time into a single indicator. Examples of data elements categorized into these four pillars include: new product openings, consumer credit scores, outstanding balances, payment behaviors, plus more than 100 additional variables.

To learn more about the latest consumer credit trends, register for the Q3 2022 Quarterly Credit Industry Insights Report webinar. Read on for more specific insights about credit cards, personal loans, auto loans and mortgages.

Consumer credit trends in the credit card sector: Q3 2022

 

Largely driven by non-prime growth and inflation, the total available bankcard and average credit lines per consumer reached the highest balances on record in Q3:

  • Bankcard originations increased to 21.3 million in Q2 2022, constituting 10.7% growth YoY — with significant growth in the subprime (+12.5%) and super prime (+15.2%) risk tier segments
  • Private label originations increased to 12.1 million; 8.4% growth YoY (with the subprime share increasing to 22.5%)
  • Total bankcard balances increased to a record level of $866 billion, representing 19% growth YoY — driven by card use across all risk tiers and recent high origination growth in non-prime segments
  • Total private label balances increased 7.3% YoY (driven by subprime consumers), while the average consumer balance reached the highest point since Q2 2020
  • Bankcard 90+ borrower-level delinquency rates increased to 1.94%, which was slightly above the 1.82% seen in Q3 2019
  • Private label 90+ borrower-level delinquency rates increased 32bps YoY to 0.84%, and total private label charge-off balances trended upward after a seven consecutive quarter decline

Our view: In this inflationary environment, consumers are increasingly turning to credit, particularly subprime consumers. Delinquencies are rising, which is to be expected given the increase in consumers getting access to credit, many for the first time. However, the numbers remain in relative alignment with the historical, pre-pandemic levels of 2019. We’re likely to see continued growth in credit card usage as increased interest rates and inflation continue to put pressure on consumers, even as employment numbers remain strong.

 

Q3 2022 credit card trends 

Key metrics
Q3 2022
Q3 2021
Q3 2020
Q3 2019
Number of credit cards
510.9 million
474.2 million
451.9 million
441.9 million
Borrower-level delinquency rate (90+ DPD)
1.94%
1.13%
1.23%
1.82%
Average debt per borrower
$5,474
$4,857
$5,068
$5,658
Prior quarter originations*
21.3 million
19.3 million
8.6
million
16.5 million
Average new account credit lines*
$5,021
$4,200
$4,001
$5,295

 

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

For more credit card industry information, click here for episodes of Extra Credit: A Card and Banking Podcast by TransUnion.

 

Consumer credit trends in the personal loan sector: Q3 2022

As of Q3 2022, 22 million consumers had an unsecured personal loan — the highest number on record — highlighting the growing popularity of this product type:

  • Total personal loan balances continued to grow, reaching $210 billion, a 34.1% increase over last year
  • Balances grew at a much higher rate (up 58%) for below prime risk tiers compared to prime and above risk tiers (up 24%)
  • Serious borrower delinquency (60+ days past due) continued to grow, now exceeding pre-pandemic levels (3.89%), a YoY increase of 54% and the highest level since 2014

Our view: Lenders’ expansion into below prime risk tiers has been a key driver of recent growth in unsecured personal loan originations, but it has also increased delinquency rates. As we look to the rest of 2022 and into next year, lenders will likely shift their originations focus toward prime and above credit risk tiers to moderate risk while maintaining growth.

 

Q3 2022 unsecured personal loan trends

 

Personal loan

Q3 2022

Q3 2021

Q3 2020

Q3 2019

Total balances

$210 billion

$156 billion

$148 billion

$152 billion

Number of unsecured personal loans

26.4 million

21.6 million

21.4 million

22.5 million

Number of consumers with unsecured personal loans

22.0 million

19.2 million

19.5 million

20.2 million

Borrower-level delinquency rate (60+ DPD)

3.89%

2.52%

2.55%

3.30%

 

Average debt per borrower

$10,749

$9,387

$8,864

$8,758

 

Prior quarter originations*

6.0 million

4.4 million

2.6 million

4.8 million

Average balance of new unsecured personal loans*

$7,925

$7,168

$5,984

$6,292

     

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

 

Consumer credit trends in the auto sector: Q3 2022

In Q2 2022, originations were down 14.9% YoY from Q2 2021, driven largely by new vehicle inventory shortages, with super prime originations decreasing 18.5% YoY. As a result, used vehicles made up 60% of financed vehicles, up from 55% in Q2 2021. Despite some recent easing in vehicle prices, affordability is still a concern for consumers:

  • New auto loans increased 12% to $40,906 and used went up 17% to $28,072
  • Monthly payments for new auto loans increased 13.7% to $679, while used payments were up 16.1% YoY to $517
  • Total auto loan balances stood at $1.49 trillion in Q3 2022, up from $1.46 trillion in Q2
  • Delinquency rates rose over the past year, recent vintages of used vehicles reflect deterioration while recent new vehicle vintages remain in-line with previous years
  • Point-in-time 60+ DPD account delinquency rates rose 22 bps quarter-over-quarter to 1.65% in Q3 2022, up from 1.43% in Q2 2022, slightly higher than the typical seasonal increase of 9–20 bps from Q2 to Q3 dating back to 2010

Our view: Supply chain challenges, inflation and rising interests continue to plague the auto industry. Delinquencies are up, particularly among subprime consumers, a trend which we expect to continue in the near term.

 

Q3 2022 auto loan trends

 

Auto lending metric

Q3 2022

Q3 2021

Q3 2020

Q3 2019

Number of auto loans

81.2 million

83.1 million

83.7 million

83.4 million

 Account-level delinquency rate (60+ DPD)

1.65%

1.20%

1.27%

1.20%

 

Prior quarter originations*

7.0 million

8.2 million

6.5 million

7.3 million

Prior quarter average monthly payment new**

$679

$597

$579

$567

Prior quarter average monthly payment used**

$517

$445

$392

$389

Average balance

of new auto loans*

$29,169

$25,607

$23,839

$21,937

Average debt per account

$18,405

$16,892

$15,694

$15,232

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

**Data from S&P Global MobilityAutoCreditInsight, viewed one quarter in arrears.

 

Click here for additional auto industry metrics.

 

Consumer credit trends in the mortgage sector: Q3 2022

In Q2 2022, the slowdown in mortgage originations continued to accelerate, down 47% from Q2 2021. Purchase volumes were down 23% YoY, and refinance volumes were down 74% YoY. Still, even as mortgage originations declined, consumer interest in home equity lines and loans was on the rise as the amount of equity mortgage holders have available continued to grow:

  • Home equity hit an aggregate total of $19.6 trillion in Q2 2022 (latest data available) and is up 22% YoY and 63% over the last five years
  • Roughly 84 million consumers have available equity in their homes, with a median equity of $236K
  • Homeowners continue to tap that equity; HELOC and home equity loan originations increased YoY by 47% and 43%, respectively
  • The average credit line for a new HELOCs was up 6.6% YoY from $113K to $121K
  • Serious mortgage loan delinquencies lingered near record lows (after years of continued declines), but despite low and stable mortgage delinquencies, the current macroeconomic volatility means lenders should continue to monitor their portfolios for changes

Our view: HELOCs and home equity loans are growing at dramatically higher rates than in recent years as consumers seek options to pay off expensive, non-mortgage debt. This presents an opportunity for lenders that use TransUnion data and analytics to understand how much equity a homeowner has access to and market personalized offers to them.

 

Q3 2022 mortgage trends

 

Mortgage lending metric

Q3 2022

Q3 2021

Q3 2020

Q3 2019

Number of mortgage loans

 

52.2 million

 

51.2 million

 

50.7 million

 

50.3 million

Account-level delinquency rate (90+ DPD)

 

 

0.60%

 

 

0.60%

 

 

0.81%

 

 

1.02%

Prior quarter originations*

1.9 million

3.6 million

 

3.3 million

1.9 million

Mortgage origination* distribution – purchase

 

 

77.4%

 

 

53.2%

 

 

42.9%

 

 

71.9%

Mortgage origination* distribution –

refinance

 

 

22.6%

 

 

46.8%

 

 

57.1%

 

 

28.1%

Average balance

of new mortgage loans*

 

 

$345,557

 

 

$305,140

 

 

$293,731

 

 

$278,724

Number of HELOC originations*

 

409,110

 

278,029

 

261,143

 

309,104

Number of home equity loan originations*

 

 

296,723

 

 

207,957

 

 

180,982

 

 

192,469

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

 

Click here for additional mortgage industry metrics.

 

For more information about the report, listen to our Q3 2022 Credit Industry Insight Report webinar.

 

About TransUnion (NYSE: TRU)

TransUnion is a global information and insights company that makes trust possible in the modern economy. We do this by providing an actionable picture of each person so they can be reliably represented in the marketplace. As a result, businesses and consumers can transact with confidence and achieve great things. We call this Information for Good®.

A leading presence in more than 30 countries across five continents, TransUnion provides solutions that help create economic opportunity, great experiences and personal empowerment for hundreds of millions of people.

http://www.transunion.com/business

 

 

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