Auto finance appears to be in a much better state than credit cards and personal loans based on TransUnion’s 2023 Consumer Credit Forecast released on Wednesday.

While experts are expecting delinquency rates for credit card and personal loans to rise to levels not seen since 2010, TransUnion is forecasting that serious auto finance delinquency rates are expected to decline modestly to 1.90% in 2023 from 1.95% in 2022.

Meanwhile, the TransUnion forecast also includes a positive upward projection.

After an anticipated decrease of 5.9% through the end of 2022, analysts said auto originations are expected to rebound in 2023, with an increase of 4.6% year-over-year.

TransUnion said most of this growth is expected to occur in the second half of the year with growth of at least 6% expected across all risk tiers in Q4 2023.

Experts elaborated that auto delinquency is expected to peak in Q4 2022 before leveling off in 2023. The percentage of contract holders 60 days past or more due is expected to climb to 1.95% in Q4 2022 and is expected to drop further until finishing 2023 at 1.90%.

“Consumer demand for vehicles is likely to remain strong, and an expected improvement in inventory shortfalls should drive an increase in auto originations over the course of the year,” said Satyan Merchant, senior vice president and auto business leader at TransUnion.

“Auto delinquency, spurred by affordability challenges and the possibility of weaker employment, is expected to increase through the end of 2022 before finishing 2023 five basis points lower than the previous year,” Merchant continued in a news release.

Personal loan originations to slow to ‘normal’ levels

Following record growth in originations in the first half of 2022, TransUnion explained several factors are driving a pullback that will likely continue into 2023.

Experts said persistent high inflation, rising unemployment, and increasing interest rates will likely drive both lender supply and consumer demand lower.

TransUnion indicated unsecured personal loan originations are predicted to come in at 19.3 million for 2023, which would down approximately 13% year-over-year. Experts acknowledged that following higher than normal volumes in 2022, the number of new personal loans in 2023 should more closely resemble figures observed in 2019 and 2021.

After steadily rising in 2022, TransUnion shared that serious delinquency rates are expected to continue to increase through the remainder of 2022 and into 2023 as increasing unemployment and moderate to high inflation will impact consumers’ ability to meet their credit obligations.

Consumers 60 days or more past due on their accounts are forecast to increase to 4.30% in 2023, up from 4.10% for 2022.

“After a year of significant growth, unsecured personal growth originations are likely to stay below 2022 levels as lenders reevaluate their risk appetite in this climate of economic volatility,” said Liz Pagel, senior vice president and consumer lending business leader at TransUnion. “Lenders are likely to turn to additional insights such as trended data in determining which loans to approve.

“As delinquencies rise, lenders will continue to tighten their buy-boxes, driving lower unsecured personal loan originations in 2023. Net-net, we still anticipate consumers to have a healthy appetite for personal loans,” Pagel added.

Overall consumer standing

Despite a challenging macroeconomic environment, TransUnion’s new Consumer Pulse study found that more than half (52%) of Americans are optimistic about their financial future during the next 12 months.

The study showed the youngest generations — millennials (64%) and Gen Z (61%) — are most optimistic.

TransUnion pointed out the optimism levels are occurring against a backdrop wherein 82% of consumers believe the U.S. is currently in or will be in a recession before the end of 2023.

“Rapidly increasing interest rates and stubbornly high inflation combined with recession fears represent the latest in a series of significant challenges consumers have faced in recent years. It’s not surprising then to see pronounced increases in delinquency rates for credit card and personal loans, two of the more popular credit products,” said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion.

“Yet, many consumers — from a credit perspective — are in a better position than they were just a few years ago, equipped with credit they can use in case of more macroeconomic challenges,” Raneri continued. “We expect demand for credit to continue to be high with lenders positioned well to meet it. While unemployment is likely to rise next year, it should remain relatively low, a key element for a healthy consumer credit market.”

For more information about the 2023 TransUnion forecast and to register for a webinar providing detailed projections, go to this website.