Gen Z Coming of Age in Credit Markets

At the mid-point of 2023, Gen Z consumers (born between 1995 and 2005) increasingly find themselves with new access to credit products. The newly released Q2 2023 Quarterly Credit Industry Insights Report (CIIR) from TransUnion (NYSE: TRU) shows that relative to the consumer population as a whole, Gen Z consumers continue to turn to bankcards and unsecured personal loans even as lenders have begun to tighten underwriting.

TransUnion’s most recent Consumer Pulse findings from July 2023 found that 50% of Gen Z consumers – compared to 32% for the entire population – are planning to apply for new credit or refinance existing credit (e.g., student loan, credit card, personal loan, car loan/lease, mortgage) within the next year. This percentage is a marked increase from the 41% of Gen Z consumers who said they planned to apply for credit or refinance in the July 2022 report.

“It makes sense to see Gen Z consumers’ use of credit cards and personal loans increase relative to consumers as a whole as they age into financial independence,” said Michele Raneri, vice president of U.S. research and consulting at TransUnion. “Like the overall population, many Gen Z borrowers are facing the same financial challenges brought on by high interest rates and inflation. As a result, they are tapping into these available credit products to help them cope with rising expenses and the tightening of their monthly budgets.”

Bankcard balances once again reached a new record high of $963 billion in Q2 2023, up 17.4% year-over-year (YoY). Among Gen Z consumers, total balances increased 51.9% YoY and now stands at $55 billion, representing 5.7% of all balances. Unsecured personal loan originations fell overall YoY for the second consecutive quarter, down 16.1%. Within the overall population, originations among Gen Z consumers were 493K in Q1 2023, representing a smaller 7.6% decrease YoY.

Gen Z Total Credit Card Balances and Share of Total Balances Are Up YoY

The report also found that lenders are continuing to increasingly focus on less risky credit tiers when considering new originations across a number of credit products, particularly impacting subprime borrowers. For instance, auto originations in Q1 2023 were down 11.6% among subprime borrowers YoY – and down 21.3% as compared to pre-pandemic 2019. Among unsecured personal loans, subprime originations for Q1 2023 were down 26.1% YoY.

To learn more about the latest consumer credit trends, register for the Q2 2023 Quarterly Credit Industry Insights Report webinar. Read on for more specific insights about credit cards, personal loans, auto loans and mortgages.

Bankcard originations and average credit lines hit record highs

Q2 2023 CIIR Credit Card Summary

Bankcard originations hit a new record high in Q1 2023, up 0.3% YoY to 18.98 million. Originations in Q1 2023 were primarily driven by growth in the prime plus and super prime risk segments – this stands in contrast to Q1 2022, when the subprime and near prime risk tiers drove growth. Bankcard balances reached a new record high of $963 billion in Q2 2023, representing a YoY growth of 17.4%. The number of cards held per consumer has increased to 2.9 in Q2 2023, and the average balance per consumer has risen to $5,947, the highest in the past ten years. Total credit line once again set an all-time record for the fifth consecutive quarter, rising to $4.5 trillion, representing a YoY increase of 9.6%. However, while total credit line continues to grow, total utilization has remained in check, remaining below 22% in Q2 2023. Average credit limit per consumer reached a new all-time high for the second consecutive quarter at $24.9K, a YoY growth of 6.4%. 90+ DPD consumer level bankcard delinquency was at 2.06% in Q2 2023, up from 1.57% in Q2 2022, but representing a decline of 20 bps quarter-over-quarter (QoQ).

Instant Analysis                                                                             

“Bankcard balances continue to grow; however, consumers are distributing those balances across more cards than they have in the past, which has resulted in balances per account remaining within normal limits. Lenders have seemingly made a clear shift in acquisition strategy as, following two consecutive quarters of record originations, subprime’s share has declined significantly for the second quarter in a row, while super prime’s share has increased to that of pre-pandemic levels.”

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

Q2 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 reach new record of $225B as declining delinquencies edge closer to pre-pandemic norms

Q2 2023 CIIR Personal Loan Summary

Total unsecured loan balances grew to $232 billion in Q2 2023, the highest level on record, representing YoY growth of 21.1%. However, this represents the third consecutive quarter that the rate of YoY balance growth has declined. Growth in balances was seen across all risk tiers but was led by super prime, which was up 39.5% YoY, followed by subprime, up 25.9% over the period. Other risk tiers saw YoY balance increases in the teens. The average account balance reached a record high of $8,558, representing an 11.1% increase YoY as super prime loans are typically larger. Q2 2023 showed a record number of consumers with an unsecured personal loan balance, reaching 22.7 million (an increase of 8% YoY). Q1 originations were down 16% YoY compared to the record-breaking originations seen in the first half of 2022.  This represents the second consecutive quarter of YoY declines. Originations were down YoY across all risk tiers with the exception of super prime, which grew 26.3%. However, despite YoY declines, the 4.3 million originations in Q1 2023 still represented a 9.1% increase over pre-pandemic Q1 2020, reflecting the growth of this industry. In line with historical seasonal findings, delinquencies decreased QoQ for the second consecutive quarter, edging closer to historical norms seen prior to the pandemic. Despite that, delinquencies remain elevated YoY, with 60+ DPD borrower-level delinquencies reaching 3.6% in Q2 2023, up 7.4% YoY.  While mix shift drove part of this sequential quarterly improvement, subprime delinquencies did decrease QoQ. 

Instant Analysis

“Unsecured personal loan balances continue to increase, driven by strong growth in the super prime segment.  Growth continued to slow, however, as lenders steered towards less risky borrowers.  Q1 originations were down 15.5% compared to record originations in Q1 2022. Subprime delinquencies backed off their Q1 2023 highs, leading to a decrease in overall delinquency that, while still high, inched closer to levels seen pre-COVID.  Lenders can still find opportunities with consumers supported by high employment levels despite inflation and other challenges.”

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

Q2 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 Q2 2023 unsecured personal loan infographic.

Mortgage balances remain near record highs while more consumers turn to HELOANs

Q2 2023 CIIR Mortgage Loan Summary

Total mortgage balances fell to $11.7T in Q2 2023, down slightly from last quarter’s record high but still 4.3% up YoY. This represented the first quarterly decline in total mortgage balances since 2015. Mortgage originations continue their decline, once again falling to a record low of 899K in Q1 2023, down 59% YoY from 2.2M a year ago. This represents the second largest annual decline on record. Purchases made up 87% of the volume in Q1 2023 with 780K originations (down by 40% YoY from 1.3M in Q1 2022). Overall refinance was down by 86% from 870K to 121K. Rate and term refinance originations decreased 93% YoY, down from 305K in Q1 2022 to just 23K in Q1 2023. This marks the third consecutive quarterly record low. Cash-Out refinance originations also fell to a new record low in Q1 2023, down 83% YoY from 565K to 98K. Home equity originations remain in line with last year's historically high levels, with HELOC originations falling 14% YoY to 252K in Q1 2023 but with HELOAN originations up 18% (from 203K to 240K) over the same period. Mortgage delinquencies displayed a slight YoY increase, with 60+ DPD delinquencies rising 14% to 0.96% in Q2 2023, representing the fifth consecutive quarter of YoY increases but still below pre-pandemic levels.

Instant Analysis 

“Mortgage rates higher than those in recent history continue to lend pause to potential borrowers, resulting in historically low mortgage originations. Demand for refinance continues to be the hardest hit by these elevated rates. Given that the large majority of existing mortgages have rates below 6%, there is no incentive for homeowners to refinance their existing lower-than-current-rates mortgage and enter into a new, costlier mortgage. However, among those who have refinanced, the vast majority (81%) opted for cash-out, indicating that consumers remain interested in tapping into the equity in their homes. It remains to be seen if an expected moderation in mortgage rates in the second half of 2023 could potentially result in an uptick in refinance activity. Home equity products continue to remain viable options for consumers looking to utilize their tappable equity to pay down higher interest debt, with consumer interest in HELOANs in particular, on the rise this year. Despite a fifth consecutive quarter of increasing delinquency levels, they still remain below historical norms. This remains a trend worth watching particularly as we continue to observe the effects of inflation on consumers’ wallets.”

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

Q2 2023 Mortgage Trends

* Originations are viewed one quarter in arrears to account for reporting lag.

With inventories on the rebound, average amounts financed for new and used cars stabilize

Q2 2023 CIIR Auto Loan Summary

Originations in Q1 2023 were down 9.4% YoY to 6.1 million, while at the same time experiencing a slight seasonal uptick up from 5.9 million in the previous quarter. Originations were down across most risk tiers YoY, with only super prime showing a YoY gain of 2.1%. When compared to 2019 levels, originations remain down across all risk tiers by 9%. Subprime saw the largest decline at 21.3% decline, followed by near prime which was down 12.3%. As new car inventories have begun to rebound, the new vs. used split has begun to revert back to pre-pandemic norms, with new cars making up 42% of all cars financed in Q2 2023, up from 39% both YoY and QoQ. Average amounts financed for new vehicles have stabilized YoY, while used have seen a decline of 6.3% YoY. Monthly payments are up for both used vehicles (2.4%) and new vehicles (9.1%) YoY; however, increases have mostly stalled over the past two quarters. Point in time 60+ DPD account delinquency remained mostly unchanged at 1.71% in Q2 2023, up from 1.69% in Q1 2023. Vintages continue to show performance similar to 2021 cohorts. Early 2022 cohorts looked materially worse, but an early look at the performance of Q3 2022 and Q4 2022 originations shows improvement.

Instant Analysis

“Inventories are on the rebound from pandemic-era lows, which will likely put pressure on both new and used car prices and lead to the return of more new vehicle incentives. This is important as affordability continues to remain a central issue for consumers, particularly in below-prime risk tiers. As used vehicle values continue to drop from peaks, the focus remains on those recent originations from the past couple of years that originated at peak prices and higher loan-to-value ratios. Originations prior to 2021 are likely in positive equity positions as vehicle values are still elevated, and those loans have had sufficient time to see pay down in their principal balances.”

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

Q2 2023 Auto Loan Trends

*Note: Originations are viewed one quarter in arrears to account for reporting lag.

**Data from S&P Global MobilityAutoCreditInsight, Q2 2023 data only for months of April & May

Click here for additional auto industry metrics. Click here for a Q2 2023 auto infographic.

For more information about the report, please register for the Q2 2023 Credit Industry Insight Report webinar.