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The number of subprime consumers applying for loans is down for the first time since 2012, according to the new TransUnion's Q2 2017 Industry Insights Report, finding that this trend is in place for a variety of major credit products this year.
When it comes to personal loans 4.63 million subprime consumers started the process for getting a new car, a personal loan or a new credit card, down from the first quarter of 2016 when that number was 4.89 million.
“Across product lines, we saw a decline in subprime originations at the beginning of 2017, and for the first time in a number of years we observed this for consecutive quarters,” said Ezra Becker, senior vice president of research and consulting for TransUnion.
“Immediately following the recession, many lenders pulled back on subprime originations to control delinquency. As the economy recovered, lenders loosened their underwriting standards and allowed more subprime consumers greater access to credit,” he said. “It appears that this trend may now be changing, though it is a much different environment than what we observed just after the recession. The economy is performing well, and after several years of increased subprime lending, some lenders may simply be taking a pause.”
The Credit cards
When it comes to the credit card market, the number of subprime originations went down by 1.8% at the beginning of the year, with the decline continuing during the second quarter.
In general, starting in 2014, subprime originations had gone up at a fast pace, with a growth rate averaging 29.2% during the first quarters of three consecutive years - 2014, 2015 and 2016. That said, during the first quarter of 2017, subprime originations began to go down at just about the same pace of all originations – 1.9%.
While subprime consumers did get credit cards, their subprime credit lines were kept low by lenders. During the first quarter of 2017, consumers with subprime status held only 2.6% of all credit lines.
The decline, the factors
During the first quarter of 2017, the number of personal loan originations was down by 10.6% year-over-year, while last year during the same time there was an 11.0% upswing in annual growth. This translates into the market experiencing year-over-year declines in originations for three quarters in a row.
What does this mean in terms of actual consumers? It equals 100,000 fewer subprime consumers opening personal loans during the first quarter of 2017 when compared to the same time in 2016.
All in all, the total number of originations fell 6.9%, down from 2.99 million in 2016 during the first quarter, with the number hitting 2.78 million this year during the same time period.
“After years of growth in auto lending for subprime consumers, not surprisingly we observed an uptick in auto delinquency. Higher delinquency rates have long been anticipated as the result of that credit expansion. The reduction in subprime auto lending is a natural reaction to the emergence of that increased delinquency,” said Becker.