Prime Credit Drives Increase in Originations, TransUnion Says

Auto lenders originated 6.79 million loans through the first quarter, which marks the first year over year increase in the number of loans since some financial institutions began pulling back in 3Q16, TransUnion reported on Wednesday in a new report analyzing the strength of consumer credit 10 years after the recession. 

The increase was driven by a 3% year-over-year increase in prime and super-prime originations as well as milder gains in nearly all other credit tiers. The boost was enough to offset a 3.3% decline in subprime loans. 

Comparing current conditions to recession levels, originations increased by 94.2% in 1Q 2018 compared with lowest origination levels of 3.5 million in 4Q 2008.

“Origination volumes are up across risk tiers, but have increased most noticeably for prime and prime plus consumers,” Matt Komos, vice president of research and consulting for TransUnion’s financial services business unit, said in the report.

As a result, prime and prime plus has taken over the majority of share from other risk tiers in terms of both accounts and balances. In fact, 53% outstandings are from prime and prime plus tiers today, compared with 41% in 2008.

The origination trend is forecasted to continue throughout the year, as TransUnion expects to report higher 2Q originations, said Brian Landau, senior vice president and automotive business leader, in the report. Though Landau said the increase in used car purchases influenced by the recent shift toward lower-risk borrowers may dampen new car sales through the rest of 2018.

Delinquencies also remain stable throughout 2Q for all risk tiers except subprime.

“Tighter underwriting over the past few quarters appears to be positively impacting the 60-plus delinquency rate,” Komos said. The delinquency rate remains flat at 1.22% in 2Q18 compared with 1.23% in 2Q17 — marking the third consecutive quarter with stable year-over-year delinquency rates.