Credit Card and Unsecured Personal Loan Balances Remain at or Near-Record Levels as Consumers Navigate Challenging Economic Climate

CHICAGO, May 11, 2023 (GLOBE NEWSWIRE) -- The newly released Q1 2023 Quarterly Credit Industry Insights Report (CIIR) from TransUnion (NYSE: TRU) shows that in this current economic climate in which inflation remains at elevated levels and interest rates have risen sharply, consumers are increasingly turning to credit to manage their household budgets, leading to record- or near-record high balances in credit cards and unsecured loans.

“We have seen record levels of originations in credit cards and unsecured personal loans since mid-2021 as strong credit positions have allowed consumers access to additional products. As inflation rose to near 40-year high levels, many consumers have used credit to help manage their budgets, leading to record- or near-record high balances,” said Michele Raneri, vice president of U.S. research and consulting at TransUnion. “It remains to be seen whether these balances will continue to grow in the near-term, or if growth will slow as consumers moderate their pace of borrowing and if lenders more closely scrutinize consumers and potential risk when determining to whom they lend moving forward.”

While down slightly quarter-over-quarter (QoQ) at -1.5%, credit card balances remain near record highs at $917 billion, which represents a year-over-year (YoY) increase of almost 20%. Credit card balances typically experience a seasonal drop in the first quarter as consumers use tax refunds to pay down debt levels. Average balance per consumer remains elevated compared to the previous year, with 14.4% YoY growth.

It is a similar story when looking at unsecured personal loans, where balances once again reached record highs in Q1 2023. All told, balances for unsecured personal loans were up 26.3% YoY in Q1 2023 to a new high of $225 billion. It’s worth noting, however, that this represented the second consecutive quarter of decelerating YoY growth rates, which may be a sign that lenders are showing more scrutiny in making underwriting decisions. All risk tiers demonstrated YoY increases, with each tier seeing double-digit balance growth. Subprime led with a 40% increase in balances YoY, followed by super prime at 34%. Prime saw the lowest growth at just under 20%. The average balance per consumer is the highest it has been on record (since 2005) at $11,281.

Credit Card and Unsecured Personal Loan Balances Have Grown YoY

To learn more about the latest consumer credit trends, register for the Q1 2023 Quarterly Credit Industry Insights Report webinar. Read on for more specific insights about credit cards, personal loans, auto loans and mortgages.

Lenders look towards lower-risk consumers amidst near-all-time high balances, stable delinquencies

Q1 2023 CIIR Credit Card Summary

Bankcard balances remained near record highs in Q1 2023, landing at $917 billion. That represents YoY growth of 19.2%. Balances were down 1.5% QoQ, experiencing the seasonal drop normally seen each year in the first quarter. Subprime share of consumers with a balance declined to 10.2%, down from 10.9% the previous quarter, ending a trend of seven consecutive quarters of growth for the subprime segment. In contrast, the share of super prime tier consumers with a balance increased to 41.8%, up from 40.6% a quarter ago. Millennials continued to see their share of balances grow, up to 28.6% in Q1 2023 as compared to 26.5% one year prior. Total credit lines increased 9.7% and reached $4.4 trillion in Q1 2023, an increase of $391 billion YoY. High growth in credit lines was observed across the risk spectrum, but 60% of the increase was driven by super prime borrowers. 2022 Q4 new account originations were 20.64 million accounts, representing a decline of -3.9% YoY and -4.3% QoQ. Most of the impact was driven by a decline in subprime originations of -19% YoY. Bankcard 90+ DPD consumer-level delinquency remained flat QoQ at 2.26% but remains up significantly from levels seen in the first quarter of 2022.

Instant Analysis        

“Bankcard balances continued to grow as borrowers gained greater access to credit and subsequently leveraged that available credit. While bankcard originations were down slightly YoY and QoQ, they still topped 20 million for the fifth time over the course of the past six quarters. 90+ DPD delinquency rates by accounts were relatively flat among all risk tiers with the exception being subprime, which were at 12.42%, up from 9.44% a year ago.”

- Paul Siegfried, senior vice president and credit card business leader at TransUnion

Q1 2023 Credit Card Trends

*Note: Originations are viewed one quarter in arrears to account for reporting lag.
For more credit card industry information, click here for episodes of Extra Credit: A Card and Banking Podcast by TransUnion.

Unsecured personal loan balances once again reach record of $225B, but growth is slowing

Q1 2023 CIIR Personal Loan Summary

As interest rates continued to climb and delinquencies remained elevated, lenders continued to tighten their lending criteria and focus more on lower-risk consumers, resulting in YoY declines of 9% in Q4 originations and decelerating YoY increases in total unsecured personal loan balances. It is important to note that originations a year ago were at record highs, so while growth has slowed, Q4 2022 originations were still strong, on par with Q4 2019 levels (a record high pre-COVID). Unsecured personal loan balances were up 26.3%, but it was the 2^nd consecutive quarter of lower YoY growth rates. The YoY decline in originations was largely driven by the prime and below-risk tiers, all of which demonstrated negative YoY growth. Subprime borrowers experienced the most significant decline, down 18.2% YoY. Balances grew YoY across all risk tiers, with each risk tier seeing double-digit balance growth as the market continued to expand following record growth starting in mid-2021 through 2022. Subprime saw the highest growth in balances at 40%, while prime plus saw the slowest growth in balances at just below 20%. The average balance per consumer in Q1 2023 rose to its highest level on record, up to $11,281. The average size of new accounts increased by nearly 11% YoY to $7,368. Borrower-level 60+ DPD delinquencies increased in Q1 2023 to 3.91%, a 20.5% increase over the prior year, although it did represent a 5.4% decrease from the prior quarter.

Instant Analysis

“Following growing delinquencies in 2022, lenders continued to adjust their underwriting practices, and balance growth in Q1 2023 slowed as a result of lower originations in Q4 2022. Delinquencies actually fell in Q1 2023 from the prior quarter, indicating that these adjustments have had an impact. As investors will continue to express a preference for lower risk, shorter duration loans, unsecured personal loans will be appealing assets, but the shift towards lower risk consumers will be apparent. In response to limited funding, expect lenders to focus on retaining existing borrowers to keep their cost of acquisition low and to limit risk by increasingly working with known borrowers with a good track record.”

- Liz Pagel, senior vice president of consumer lending at TransUnion

Q1 2023 Unsecured Personal Loan Trends

*Note: Originations are viewed one quarter in arrears to account for reporting lag.
Click here for additional unsecured personal loan industry metrics. Click here for a Q1 2023 unsecured personal loan infographic.

Mortgage balances at record highs while originations near record lows

Q1 2023 CIIR Mortgage Loan Summary

While total mortgage balances reached a record level of $11.8T in Q1 2023, the slowdown in mortgage originations continued to accelerate, down from 2.9M in Q4 2021 to 1M in Q4 2022, representing a 65% YoY drop – the largest decline since TransUnion has been tracking. Within originations, purchases made up 86% of the volume in Q4 2022 with 900,000 originations (down by 45% YoY from 1.6M in Q4 2021). Refinance originations fell by 89% YoY from 1.3M to 143,000, the lowest level to date. This was driven by the dramatic decrease of rate and term refinances, which were down by 96% YoY from 588K in Q4 2021 to 24K in Q4 2022, and cash-out refinance originations, which were down by 83% YoY from 716K to 120K. Conversely, HELOC originations were up 7% YoY to reach 299K in Q4 2022, while home equity loan originations grew 31% YoY to 264K. Mortgage delinquencies ticked up YoY, with account-level delinquency (60+ days past due) growing 12% to 0.98% in Q1 2023, though still remaining at very low levels historically.

Instant Analysis

“The relatively higher interest rate environment has depressed mortgage refinancing in particular. Interestingly, cash-out refinance hasn’t been as impacted as rate and term refinance. This, coupled with the increases observed in HELOC and home equity loan originations, indicates that homeowners are still interested in tapping their home equity, even at higher interest rates. It is also encouraging that purchase originations remain near the lower end of the normal activity range, indicating that consumers are continuing to purchase homes even in this higher-rate environment. While delinquency levels remain below historical norms, this marks the fourth consecutive quarter of increase– a trend worthy of continued monitoring in 2023 as macroeconomic volatility and increased cost-of-living may be starting to affect delinquencies.”

- Joe Mellman, senior vice president and mortgage business leader at TransUnion

Q1 2023 Mortgage Trends

* Originations are viewed one quarter in arrears to account for reporting lag.
Click here for additional mortgage industry metrics. Click here for a Q1 2023 mortgage infographic.

As inventories begin to replenish, all eyes on vintage performance

Q1 2023 CIIR Auto Loan Summary

Originations in Q4 2022 were down 9.7% YoY to 5.9 million. This represents the lowest level since Q4 2013. Originations were down across all risk tiers, with all tiers seeing decreases of between 10 and 13% YoY, with the exception of super prime, which is down only 1%. When compared to the pre-pandemic Q4 2019, originations were down across all risk tiers, with subprime (-17.8%) and super prime (-15.9%) leading the way. The new vs. used split remains steady, with used cars making up 60% of all car purchases in Q1 2023. Leasing continues to lag, only accounting for 18% of new vehicle registrations, down from 20% YoY. The average amount financed for new vehicles was up 3.4% YoY, while the average amount financed for used vehicles was down 2.6% YoY. Monthly payments were up YoY for both new cars (+11.9%) and used cars (+3.9%). The account-level 60+ DPD delinquency rate rose to 1.69%, up from 1.43% YoY. Vintage performance, which reflects the performance of an account in different periods of time after the loan was granted, continues to show relatively strong results, with new vintages remaining at pandemic-era lows and performing better than pre-pandemic.

Instant Analysis

“Driven by lower inventories and higher interest rates, originations remain down from the same quarter one year ago. However, as production begins to catch up to demand, there is hope that this trend will reverse course soon, at least among new cars. The used market is expected to remain tight, as the lower level of new car sales starting in 2020 means fewer recent model-year used cards available. Affordability remains a central issue for consumers, especially those below prime. We continue to pay close attention to delinquencies but continue to see positive signs among vintage data.”

- Satyan Merchant, senior vice president and automotive business leader at TransUnion

Q1 2023 Auto Loan Trends

*Note: Originations are viewed one quarter in arrears to account for reporting lag.
**Data from S&P Global MobilityAutoCreditInsight, Q1 2023 data only for months of January & February
Click here for additional auto industry metrics.

For more information about the report, please register for the Q1 2023 Credit Industry Insight Report webinar.

About TransUnion (NYSE:TRU) 

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