2022 Credit Forecast: Broader Lending to Higher Risk Clientele Will Expand Market as Economy Normalizes

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With the consumer landscape starting to more closely resemble the pre-pandemic era, continued expansion of lending is expected in 2022, with origination levels reaching or surpassing pre-pandemic levels, according to the newly released TransUnion Financial Services 2022 Consumer Credit Forecast.

The forecast found that the auto, credit card and personal loan markets are expected to continue expanding into the non-prime segment of the market as financial institutions recalibrate their growth strategies.

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Charlie Wise, SVP of Research and Consulting at TransUnion, told GOBankingRates that many lenders pulled back or halted lending altogether during the height of the pandemic, and without originating new loans or extending credit products, growth for many lenders was muted during 2020.

“Now that the economy is starting to normalize and lender confidence has been restored, lenders are more comfortable with once again extending credit — especially to the non-prime segment of the market,” Wise said. “The fact that new volumes are expected to reach or surpass 2019 levels across many segments of the market is a sign that things are well on the road to recovery.”

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Indeed, TransUnion found that non-prime originations are expected to impact many credit industries.

Originations for personal loans are expected to continue rising in 2022 — marking seven straight quarterly increases and the share of non-prime originations will continue to rise to 71% in 2022, from 68% in 2021.

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Auto loan originations are expected to rise to 28.9 million in 2022, from a projected 28.3 million in 2021- well above the 26.8 million originations observed in 2020. Non-prime originations are forecast to rise from 9.4 million in 2021 to 10 million in 2022, representing a higher share of all auto loans.

While credit card origination growth to non-prime borrowers will slow from 29.2 million in 2021 to 28.8 million in 2022, the number of loans issued to this group of consumers remains well above 2020 (20.4 million) and 2019 levels (26.3 million).

According to the forecast, at the height of the pandemic, many lenders pulled back and tightened underwriting to hedge risk in a period of great uncertainty. However, consumer performance has continued to stay strong, which has restored lender confidence.

Wise explained that forbearance programs and government stimulus funds “worked as intended and provided a safety net for many consumers as well as additional liquidity.”

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“Financial institutions are ready to return to lending and meet the demand for credit for consumers that have traditionally been in the riskier credit segments — something lenders were not as keen on when there was greater uncertainty in the market,” he said.

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Another key finding of the forecast is that card balances are expected to continue an upward trend in 2022, following robust bankcard origination growth in 2021. This growth is expected to fuel the continued recovery of consumer spending through the summer and into the start of the holiday shopping season. Indeed, in the first quarter of 2022, balances are expected to show as much as 10% YOY growth and then stabilize — with spending levels remaining below pre-pandemic levels, according to TransUnion.

“Card balances saw a significant decrease in 2020. Lockdowns were in place across the country and things that consumers spent money on — whether it was retail, entertainment or dining — were all closed,” Wise said. “In addition to consumer spending dropping, consumers had more liquidity in the form of government stimulus funds and could pay down balances.”

Fast forward to 2021 and the economy has normalized compared to one year ago, he adds. “There’s been vaccine rollout, businesses are open, and consumers are returning to work and this is a trajectory we expect to continue. Consumers are more confident in the economy which should lead to a resurgence in spending.”

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He warns, however, that should significant disruptions happen to the economy, such as new COVID-19 variants, that could impact balance growth.

Finally, Wise said that TransUnion expects consumers to continue spending more money so long as economic conditions remain favorable.

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“If card balances begin to ramp up to pre-pandemic levels, we believe this will also drive growth in the consumer lending market as many consumers seek personal loans for the purpose of debt consolidation,” he said. “We expect an increase in personal loan volume for other reasons such as home improvements — more consumers are working from home — and just an overall increased demand for credit.”

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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