TransUnion spots stability in auto & record in personal loans

While mentioning an overall uptick in products being used by consumers falling into the non-prime credit category, the auto portion of TransUnion’s Q4 2021 Quarterly Credit Industry Insights Report (CIIR) contained information and insights that finance companies might find encouraging.

In light of reduced vehicle inventory and semi-conductor chip shortages, TransUnion indicated year-over-year origination rates remained flat in Q3 2021 at 7.3 million as originations are viewed one quarter in arrears to account for reporting lag.

As a result of low supply and high demand, vehicle affordability and pricing have been impacted, TransUnion tabulated the average balance of an installment contract — including both new and used — grew to $26,976 during the third quarter, representing a 14% increase year-over-year

TransUnion mentioned average monthly payments have also been affected by the current environment, increasing from $459 in Q3 2019 prior to the pandemic to $531 in Q3 2021.

“Dealerships continue to face challenges around vehicle supply, and while originations held relatively flat in Q3 2021, uncertainty surrounding when inventory issues might be resolved continue to hang over the auto industry,” said Satyan Merchant, senior vice president and automotive business leader at TransUnion.

“We expect this, coupled with rising vehicle prices across both used and new vehicles, will impact auto sales through the remainder of 2022. Consumer performance, however, remains at healthy levels — especially as the majority of pandemic forbearance programs have expired,” Merchant continued in a news release.

Q4 2021 Auto Loan Trends 

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

**Data from IHSM Catalyst, information is viewed one quarter in arrears.

Source: TransUnion

Update on personal loans

Meanwhile, another financial services segment often used by consumers who might be below the prime credit segment is gaining volume.

TransUnion determined the personal loan market has markedly rebounded since lenders pulled back during the early quarters of the pandemic.

The report showed origination volumes have returned to pre-pandemic levels with 5.1 million in Q3 2021, exceeding the 5.0 million loan originations in Q3 2019.

TransUnion said the average new account balance grew by 23.8% year-over-year to $7,104 in Q3 2021. This growth helped drive personal loan balances to a total of $167 billion in Q4 2021 — an all-time high, according to TransUnion.

“The consumer lending market has returned to pre-pandemic levels, with balances even exceeding Q4 2019 numbers. Strong origination volumes, especially in below prime segments, coupled with material balance growth is an indication of lender confidence in consumer financial health,” said Liz Pagel, senior vice president and consumer lending business leader at TransUnion.

“While the increase in subprime originations has led to a slight increase in delinquencies, they still remain well below pre-pandemic levels, and delinquencies by risk tier remain fairly stable,” Pagel continued in the news release.

Overall credit activities

With consumer credit performance maintaining healthy levels across auto, credit card, personal loans and mortgages, TransUnion said finance companies and other lenders continued to ramp up new account origination growth in the non-prime segment of the market near the end of 2021.

TransUnion also found that loans to non-prime borrowers increased while accounts originated during the pandemic in 2020 continued to perform as well or better when compared to loans from previous years.

The credit card market, in particular, saw a very high rate of new account growth in Q3 2021, which is latest data available to TransUnion, with a record 20.1 million originations, 9.0 million of which were to non-prime consumers.

Overall card originations in the quarter grew 63% year-over-year, while non-prime originations increased 75% year-over-year from the 5.1 million non-prime originations that occurred in Q3 2020.

TransUnion reiterated that the non-prime risk range in its database includes the subprime risk tier (defined as a VantageScore 4.0 range of 300-600) as well as the near-prime risk tier (score range of 600-660).

“There was a great deal of uncertainty in the initial months of the pandemic, and many lenders opted to take a wait and see approach. Adding to the uncertainty was the jump in consumers in loan accommodation programs, and questions on how those consumers would perform once they exited those programs. Lending to below prime consumers was suppressed and financial institutions turned their focus to the prime areas of the market to help mitigate risk,” said Charlie Wise, senior vice president of research and consulting at TransUnion.

“Toward the end of 2021, the majority of accommodation programs have expired and lenders have seen that consumers continue to perform well on their credit obligations. Lenders are eager to pursue growth, including expanding back into the non-prime consumer segment,” Wise went on to say.