Newest TransUnion auto finance data shows trend not seen in almost 10 years

The auto portion of TransUnion’s Q4 2022 Quarterly Credit Industry Insights Report (CIIR) included a metric that dipped to its lowest reading in nearly a decade.

Viewed one quarter in arrears to account for reporting lag, TransUnion reported this week that auto finance originations in the third quarter of 2022 softened by 9.8% year-over-year to 6.6 million, representing the lowest seasonal volume since 2013.

Analysts explained this reading represented the second consecutive year that Q3 — which typically represents the highest volume quarter  — has trailed Q2.

However, in what TransUnion called a sign that post-pandemic new-vehicle supply shortages may be easing, analysts indicated that for the first time since 2021 new vehicles comprised more than 40% of vehicles financed in Q4 2022.

Leasing, however, continues to lag, according to TransUnion’s data.

In Q4, TransUnion reported leasing represented 20.9% of all new-vehicle registrations, down from 24.7% in Q4 2021.

Despite slight decreases in average amounts financed for both new and used vehicles, TransUnion indicated monthly payments continued to grow in Q4 2022, albeit more slowly than one year prior.

Point-in-time serious account delinquency — what TransUnion classifies as 60 days or more past due — rose 13 basis points quarter-over-quarter to 1.78% in Q4 2022, which is slightly higher than the typical seasonal increase of approximately 7 basis points from Q3 to Q4.

While new vintage performance shows stable performance, analysts said they are seeing some deterioration on used vehicle vintages when comparing to pre-pandemic cohorts.

“The fact that new vehicles made up more than 40% of all cars financed this quarter for the first time since the end of 2021 is a sign that the new vehicle inventories are improving from significant supply shortages earlier in the year. However, despite a decrease in the average amount financed for both used and new cars, inflation and rising interest rates continue to impact consumer affordability, with monthly payments for both new and used vehicles continuing to rise, albeit more slowly,” said Satyan Merchant, senior vice president and automotive business leader at TransUnion.

“While point-in-time delinquency rates continue to rise, context is important when reviewing auto delinquency figures. Recent vintages show deterioration for used vehicle financing while new financing performance remains stable,” Merchant continued in a news release.

Q4 2022 Auto Loan Trends

*Note: Originations are viewed one quarter in arrears to account for reporting lag.
**Data from S&P Global MobilityAutoCreditInsight, Q4 2022 data only for months of October & December

Source: TransUnion

Unsecured personal loan balances reach record $222B

A financial tool sometimes used by consumers who fall into the subprime credit bucket, TransUnion also gave an update about personal loans.

Despite the rate of growth slowing in the second half of 2022, TransUnion discovered unsecured personal loan balances climbed to a record $222 billion in Q4 2022. Analysts said this increase was driven by record high originations in the first half of the year.

While balances grew across all risk tiers, TransUnion determined below-prime tiers led the way with year-over-over-year growth of 60.4% for subprime and 38.7% for near prime.

Total new account balances grew 25.8% year-over-year to reach $38.3 billion, according to TransUnion data.

Analysts pointed out a record 22.5 million consumers currently have at least one unsecured personal loan, a 12.9% year-over-year increase.

TransUnion said originations in Q3 2022 — again viewed one quarter in arrears — came in at 5.6 million, which represented year-over-year growth of 9.2%, similar to the pre-pandemic (Q3 2019) growth rate of 9.7%, but far behind the growth seen in the first half of the year.

Analysts also acknowledged evidence of a lender pull-back is beginning to show in Q3 2022 as originations shrank 6.6% quarter-over-year despite Q3 typically being stronger than Q2.

TransUnion projected that Q4 2022 is expected to see further pull-back.

Analysts added delinquencies once again increased, with serious borrower delinquency — what TransUnion categorizes as 60 days or more past due — increasing for the sixth consecutive quarter in Q4 2022. The reading of 4.14% is the highest level seen since Q4 2011, representing a 38% increase year-over-year.

Liz Pagel, senior vice president of consumer lending at TransUnion, explained the increase is in part due to the unprecedented growth seen in the first half of the year, which caused lenders to compete and grow business in riskier borrower tiers. Subprime delinquencies rose 25% year-over-year in contrast to super prime, which fell 21% year-over-year.

“Balances in unsecured personal loans grew an impressive 32% in 2023, despite slower growth in the back half of the year,” Pagel said in the news release. “Unprecedented origination growth and buy box expansion began in late 2021 and continued through Q2 2022. In Q3 2022, lenders began to slow their growth and shift their focus to lower-risk borrowers. On a percentage basis, personal loan originations for subprime and near prime borrowers increased in the single digits year-over-year whereas super prime borrowers experienced a 33% rise in the third quarter.

“Some of the growth from earlier in the year is leading to rising delinquency rates among below prime consumers in recent vintages, which is likely to continue. Against this backdrop, lenders are likely to continue adjusting lending criteria to grow slowly in the upcoming quarter,” she went on to say.

Q4 2022 Unsecured Personal Loan Trends

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

More details on credit utilization

TransUnion data showed that whether it’s Gen Z consumers opening credit cards, homeowners taking out home equity lines of credit (HELOCs) or consumers continuing to turn to unsecured personal loans, more and more borrowers are looking to a range of credit products to cope with the financial pressures of today and better position themselves for the evolving financial landscape.

“Whether it’s shopping for a new car or buying eggs in the grocery store, consumers continue to be impacted in ways big and small by both high inflation and the interest rate hikes implemented by the Federal Reserve, which we anticipate may continue for at least a few more months,” said Michele Raneri, vice president of U.S. research and consulting at TransUnion.

“If more moderated rate hikes continue, it would be a good sign that the increases have been working, and that some relief from high inflation may be on the horizon. Until then, we fully expect consumers to continue to look to credit products such as credit cards, HELOCs and unsecured personal loans to help make ends meet and put themselves in stronger financial standing moving forward,” Raneri added.

Elsewhere, TransUnion’s Credit Industry Indicator (CII) fell to 110 in Q4 2022, a year-over-year drop of 5 points from the Q4 2021 reading and a sequential drop of 10 points from the previous quarter level in Q3 2022.

Analysts reiterated 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, as well as more than 100 other variables.

Increases in the CII level indicate overall positive trends in the health of the credit market.

TransUnion explained the Q4 2022 decrease in the CII was largely driven by cooling demand for new credit, especially mortgages, and rising delinquencies across many product categories, particularly unsecured credit products, from the record lows seen in 2021. These factors offset the positive developments seen in the credit market, including continued growth in originations of new credit cards and unsecured personal loans, higher credit participation (number of consumers with access to credit) and overall balance growth across products.

Despite the recent quarter dip, Charlie Wise, senior vice president and head of global research and consulting at TransUnion, noted that the CII remains well above levels seen at the height of the pandemic in 2020 and early 2021.

“While a single indicator number can’t fully reflect all the complexities of the consumer credit market, the CII was developed to create an overall barometer of how the market is trending. The dip in the most recent quarter indicates that the market is starting to see some headwinds, particularly around delinquencies,” Wise said.

“However, the continued supply of new credit to consumers in recent quarters, especially at a time when many consumers are feeling the effects of high inflation levels, is one of several factors showing that, overall, the consumer credit market remains healthy,” he went on to say.