TransUnion spots positive Q2 trends for delinquency & subprime growth

The financial services industry — including auto financing — is rebounding strongly from the early impacts of the COVID-19 pandemic, according to TransUnion’s Q2 2021 Quarterly Credit Industry Insights Report (CIIR).

In fact, analysts discovered the metric that many finance company executives might be watching closest nowadays — delinquencies — is at a rate on par with what they observed before the pandemic.

TransUnion reported on Wednesday that delinquency rate for contract holders 60 days or more past due came in at 1.23% during the second quarter.

And analysts shared more positive trends tied directly to the subprime space.

TransUnion said the subprime risk tier has seen 5.9% origination growth with serious delinquency rates for this risk tier slowing year-over-year for the first time since the beginning of the pandemic.

Analysts went on to mention that overall originations continue to grow and were up 16.3% year-over-year with growth observed across all credit tiers — even in light of rising new- and used-vehicle prices.

“Q2 2020 was the first quarter in which the auto finance industry was truly impacted by the economic shutdown brought on by the COVID-19 pandemic, said Satyan Merchant, senior vice president and automotive business leader at TransUnion.

“One year later, the auto finance industry is recovering nicely and showing significant growth, with the number of auto loan originations increasing to 7.4 million — compared to 6.3 million over the same period last year,” Merchant continued in a news release. “This rapid increase in auto loans has occurred even as vehicle prices have been driven higher due to supply shortages impacting inventory on dealer lots.

“Lenders have continued to manage the risk in their portfolios well in 2021, helped by continued consumer resiliency as the economy rebounds,” he went on to say.

Q2 2021 Auto Loan Trends

*Note: Originations are viewed one quarter in arrears to account for reporting lag.
**VantageScore 3.0 standard risk tiers: Subprime= 300-600; Near Prime= 601-660; Prime= 661-720; Prime Plus= 721-780; Super Prime= 781-850
Source: TransUnion.

Overall assessments

Looking at all of financial services, TransUnion acknowledged that many finance companies and lenders struggled with making credit available to consumers in the face of branch closures and a remote workforce.

One year later, analysts said, providers have adapted and shifted to a digital-first origination strategy and enhanced their capabilities to originate new accounts virtually.

Analysts also said that financial institutions are returning to lending and extending credit due to the greatly improved view of consumer credit health since the start of the COVID-19 pandemic.

To provide greater insight on the financial standing of consumers and the health of the overall consumer credit market, TransUnion unveiled the Credit Industry Indicator (CII) to better monitor consumer and lender behaviors and provide a comprehensive look at credit activity and performance.

The new CII has shown measured improvement and is reflecting increased lender confidence, with the indicator most recently reaching a high of 128 in Q2 2021, up from 87 in Q2 2020.

Matt Komos, vice president of research and consulting at TransUnion explained that this significant jump demonstrates that consumers are rebounding from the pandemic and surpasses the 127 CII observed pre-pandemic in Q1 2020.

“COVID-19 upended the way consumer credit health has been looked at traditionally,” Komos said in the news release. “To gain a more complete picture on the status of consumers, we are expanding our traditional Credit Industry Insights Report to show a comprehensive measure of credit market health.

“The latest CII indicates that we are well on the road to recovery, and we expect CII levels to continue to grow over the course of the year, so long as COVID cases drop, reopening plans continue, and consumer spending levels remain robust,” Komos continued.

Consumer lending performance

TransUnion highlighted the unsecured consumer lending industry continues to show signs of recovery, as many of these individuals also fall into the subprime auto finance market.

Analysts indicated Q2 balances increased quarter-over-quarter for the first time since the pandemic began, rising by 1.7%. TransUnion also noted consumer-level delinquencies fell to 2.28% for loans 60 days or more past due. That reading marked a 26% improvement from Q2 of last year.

TransUnion pointed out that delinquency rates for these products remain well below historical trends and stand at their lowest level since 2015.

Liz Pagel, senior vice president and consumer lending business leader at TransUnion, mentioned that average new account balances grew 7.5% year-over-year; driven by growth across all risk tiers.

Pagel explained in the news release that these positive trends signify health in the personal loan market, with many lenders looking to ramp up originations to meet renewed consumer demand after the industry saw a drop in the number of consumers with a personal loan since the start of the pandemic.

“The market is showing signs of recovery with lenders taking a measured return to their lending approach,” Pagel said. “While Q1 originations are still trailing Q1 2020 levels, lenders are gradually extending more credit, with the difference from pre-COVID narrowing each quarter.

“Increased spending is expected to continue and to ramp up throughout the year as more consumers look to access credit. Given this trajectory, originations should begin to show growth, especially as loan performance remains strong,” she went on to say.

For more information about the report, register for the TransUnion Q2 2021 CIIR webinar via this website.