Nearly 12 Million Consumers Gained Access to Credit Products Including Auto, Credit Card and Personal Loans in 2016
TransUnion report finds personal loans continued to grow in popularity; Baby boomers make up largest share of consumers with a personal loan in 2016
Auto loans, credit cards and personal loans reached new milestones in 2016 as the number of consumers with access to these products continued to grow, according to TransUnion’s (NYSE:TRU) Q4 2016 Industry Insights Report. The report, powered by PramaSM analytics, found that balances rose across all credit products by year-end.
The consumer credit market performed well at the end of 2016. Total balances rose across every credit product in the fourth quarter following a strong shopping season. For the past several years, auto lenders have been responding to the pent-up demand in the subprime risk tier, and card issuers have been competing for share of wallet. Lenders are issuing more credit, and consumers are using that credit. As a result of this conscious effort to relax underwriting, we have observed higher, although still well controlled, credit card and auto delinquency rates over time.
Personal loans reached a new milestone at the conclusion of 2016, with total balances topping $100 billion for the first time ever. While younger consumers have played a major role in the growth of these lending products, TransUnion’s Q4 2016 Industry Insights Report confirmed that, contrary to popular belief, mature borrowers are leading the charge on these loans. “Personal loans continued to grow in originations and balances, and we expect this to remain a popular product for all consumers in 2017,” added Verma.
Baby boomers comprised 32.8% of all consumers with a personal loan at year-end 2016, followed by Gen X (31.6%) and millennials (26.6%). In Q4 2013, millennials comprised just 23.5% of personal loan users, but their share grew over the past three years to reach 26.6% at the end of 2016.
Consumers with a Personal Loan by Generation
Generation | Percentage of consumers with a personal loan – Q4 2016 | Percentage of consumers with a personal loan – Q4 2013 |
Gen Z (1995 and younger) | 1.6% | 0.02% |
Millennial (1980-1994) | 26.6% | 23.5% |
Gen X (1965-1979) | 31.6% | 31.4% |
Baby boomer (1946-1964) | 32.8% | 36.2% |
Silent (1945 and older) | 7.3% | 8.8% |
There is a perception that personal loan growth has been driven by younger consumers, but our data clearly indicate that these loans are appealing to older borrowers. We believe some of this growth is occurring because interest rates may be lower than for other types of credit for certain baby boomer segments.
Total personal loan balances grew $14 billion between year-end 2015 and year-end 2016, reaching $102 billion. The number of consumers with a personal loan continued to climb steadily and ended 2016 at the highest level since at least Q3 2009. In Q4 2016, 15.82 million consumers had a personal loan.
With fewer millennials comprising the FinTech space than expected, TransUnion explored where they may be shopping for loans. The study found that credit unions are seeing membership growth with the millennial generation. As of Q4 2016, of all consumers with a FinTech personal loan, just 26.3% were millennials, compared to 30% of credit unions’ personal loan customers. The average credit union personal loan was originated at $5,216, compared to $8,051 for FinTech personal loans. Banks originated the largest personal loans at $11,290.
“The distribution of millennial consumers across lender types represents a healthy, competitive market,” said Laky. “Likely due to their strong relationships with members, credit unions have a slightly larger share of millennial personal loan borrowers, but our data show that they originate smaller loans than FinTechs and other lenders.”
Personal Loan Lenders’ Share of Millennial Generation
Lender Type | Percentage of customer base in Millennial Generation | Average Loan Size for All Generations |
Bank | 26.1% | $11,290 |
Credit union | 30.0% | $5,216 |
FinTech | 26.3% | $8,051 |
Finance company | 24.3% | $2,885 |
The personal loan delinquency rate was 3.83% in Q4 2016, the highest Q4 reading since 2013 and up from 3.62% in Q4 2015. Originations, viewed one quarter in arrears, declined for the second consecutive quarter. Originations dropped 5.7% from 3.75 million in Q3 2015 to 3.54 million in Q3 2016. “We’ve observed a decline in non-prime lending that we attribute to mid-year FinTech funding challenges and regulatory uncertainty in advance of the election,” added Laky. “We believe that the personal loan market is stabilizing, and have seen balances grow across risk tiers through the end of the year.”
Trends in the Unsecured Personal Loan Market
Unsecured Personal Loan Metric | Q4 2016 | Q4 2015 | Q4 2014 | Q4 2013 |
Delinquency Rate (60+ DPD) Per Borrower | 3.83% | 3.62% | 3.73% | 4.01% |
Average Debt Per Borrower | $7,640 | $7,360 | $6,741 | $6,247 |
Prior Quarter Originations* | 3.54 million | 3.75 million | 3.35 million | 3.26 million |
*Note: Originations are viewed one quarter in arrears to account for reporting lag.
Mortgage Delinquency Rate Stabilizes in Q4 2016
While mortgage delinquencies continued to decline in 2016, signs of plateauing are now evident. The mortgage delinquency rate concluded 2016 at 2.28%, and has now declined every quarter on a quarter-over-quarter basis since Q3 2013. While the delinquency rate dropped 7.3% in the last year, it remained nearly unchanged from Q2 2016 (2.30%) and Q3 2016 (2.29%).
The mortgage delinquency rate has declined for several quarters, to the point where we are now observing a stabilization of delinquency rates. The data suggest, given the current state of credit accessibility, we are reaching a natural floor for delinquencies after years of declines.
Mortgage originations, viewed one quarter in arrears, reached 2.23 million in the third quarter of 2016. A growth rate of 19.0% year-over-year propelled mortgage originations to the highest level since they reached 2.32 million in Q2 2013. The average mortgage balance also reached a post-Recession high of $194,415 in Q4 2016.
“Originations have continued to grow across all risk tiers, which suggests lenders may be warming up to originating mortgages to non-prime borrowers, even though that share of the market remains small at under 4%. In the third quarter, mortgage originations surpassed two million originations for the first time in three years, as borrowers continued to take advantage of low interest rates and as economic indicators point to a well-performing economy with low unemployment and wage growth,” said Mellman. “Throughout 2017, we will monitor whether the rise in interest rates impacts mortgage market growth.”
Trends in the Mortgage Market
Mortgage Lending Metric | Q4 2016 | Q4 2015 | Q4 2014 | Q4 2013 |
Delinquency Rate (60+ DPD) per Borrower | 2.28% | 2.46% | 3.40% | 4.31% |
Average Debt Per Borrower | $194,415 | $189,914 | $187,311 | $187,228 |
Prior Quarter Originations* | 2.23 million | 1.87 million | 1.51 million | 1.82 million |
*Note: Originations are viewed one quarter in arrears to account for reporting lag.
Consumers with an Auto Loan Reach Highest Levels since 2009
The latest Industry Insights Report found that 80 million consumers had an auto lease or loan as of year-end 2016. This marks the highest level TransUnion has observed since at least Q3 2009, as approximately 4.3 million additional consumers took out an auto lease or loan in 2016.
Total auto loan balances continued to grow at the end of 2016, closing the year at $1.11 trillion. The total balance grew 8.3% during 2016, slower than the average growth rate of 11.0% between 2013 and 2015. The average auto balance per consumer also rose slightly to $18,391, up from $18,004 in Q4 2015.
For the second consecutive quarter, total auto balances had a year-over-year growth rate below 10%, reflecting the slower growth that we are seeing in new car sales. In the third quarter, auto originations declined year-over-year for the first time in six years. Prime plus and super prime originations continued to grow in Q3 2016, indicating lenders are beginning to shift their focus away from the riskiest segments, where we’ve seen strong competition among lenders that has put pressure on risk adjusted margins.
Auto originations declined 0.8% to 7.46 million in Q3 2016, down from 7.52 million in Q3 2015. Subprime originations experienced the largest decline (-3.2%), and prime plus (+1.8%) and super prime (+1.7%) originations grew in the third quarter of 2016.
The auto delinquency rate reached 1.44% to close 2016, a 13.4% increase from 1.27% in Q4 2015. Auto delinquency is at its highest level since the Q4 2009 reading of 1.59%.
Trends in the Auto Market
Auto Lending Metric | Q4 2016 | Q4 2015 | Q4 2014 | Q4 2013 |
Delinquency Rate (60+ DPD) Per Borrower | 1.44% | 1.27% | 1.19% | 1.23% |
Average Debt Per Borrower | $18,391 | $18,004 | $17,456 | $16,781 |
Prior Quarter Originations* | 7.46 million | 7.52 million | 7.01 million | 6.58 million |
*Note: Originations are viewed one quarter in arrears to account for reporting lag.
Total Credit Card Balances Reach $717 Billion at the End of 2016
TransUnion found that the number of consumers with a credit card balance rose 4.4% in Q4 2016 to 139.2 million, the highest level since 2009. Total credit card balances are also at their highest levels since Q3 2009. The largest growth in credit card balances came from the subprime risk tier, where balances rose 10.8% between Q4 2015 and Q4 2016.
In addition, the average card balance per consumer grew 2.8% to $5,486, up from $5,337 at year-end 2015 and the highest level since $5,609 in Q4 2010.
The credit card business hit several milestones in the fourth quarter, as the number of consumers with a card balance rose to the highest level we’ve observed in seven years. Driven by a strong holiday shopping season and a steep rise in consumer sentiment, total credit card balances increased 8% year-over-year and surpassed $700 billion for the first time. Originations continued to rise across all risk tiers, but subprime originations grew at a more moderate pace.
Originations, viewed one quarter in arrears, grew 14.1% to 17.52 million in Q3 2016, up from 15.36 million in Q3 2015. Subprime originations grew at 8.6% year-over-year in the third quarter of 2016, compared to an average third quarter growth rate of 26.8% from 2013 to 2015.
The credit card delinquency rate reached 1.79% in Q4 2016, an increase of 12.6% from 1.59% in Q4 2015. This marks the highest Q4 delinquency reading since Q4 2011, when the delinquency rate reached 1.90%. The credit card delinquency rate remains more than a full point below its peak in Q4 2009 (2.97%).
“Card delinquencies experienced a deterioration in the fourth quarter of 2016 as lenders’ subprime portfolios matured and energy-dependent states experienced ongoing challenges,” added Siegfried. “However, we observed a significant slowdown of originations to subprime consumers, which could signal lenders are evaluating their risk management strategies in light of the rising delinquency rate.”
Trends in the Credit Card Market
Credit Card Metric | Q4 2016 | Q4 2015 | Q4 2014 | Q4 2013 |
Delinquency Rate (90+ DPD) Per Borrower | 1.79% | 1.59% | 1.48% | 1.60% |
Average Debt Per Borrower | $5,486 | $5,337 | $5,329 | $5,324 |
Originations* | 17.52 million | 15.36 million | 14.40 million | 11.93 million |
*Note: Originations are viewed one quarter in arrears to account for reporting lag.
Please visit http://www.transunioninsights.com/IIR for more charts and details about TransUnion’s Q4 2016 Industry Insights Report or register for TransUnion's Q4 2016 Industry Insights Webinar.
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Information is a powerful thing. At TransUnion, we realize that. We are dedicated to finding innovative ways information can be used to help individuals make better and smarter decisions. We help uncover unique stories, trends and insights behind each data point, using historical information as well as alternative data sources. This allows a variety of markets and businesses to better manage risk and consumers to better manage their credit, personal information and identity. Today, TransUnion has a global presence in more than 30 countries and a leading presence in several international markets across North America, Africa, Latin America and Asia. Through the power of information, TransUnion is working to build stronger economies and families and safer communities worldwide.
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