Subprime Demand Drives US Loan Growth to New Heights

Why It Matters

The surge highlights growing credit risk among subprime households and signals tighter future lending conditions, affecting banks, fintechs, and the broader economy.

Key Takeaways

• Unsecured loan balances hit $276 bn, up 10%.
• 26.4 m borrowers, +1.9 m year‑over‑year.
• Credit card limits cut despite 4% balance rise.
• Delinquency rates edging higher across subprime loans.
• TransUnion projects 5.7% unsecured loan growth in 2026.

Pulse Analysis

Falling interest rates and rising living expenses have nudged many subprime consumers toward unsecured personal loans as a consolidation tool. By converting high‑interest credit‑card debt into fixed‑rate installments, borrowers seek predictability, yet the rapid expansion of loan balances—now $276 bn—exposes lenders to heightened credit exposure. Credit‑card issuers have responded by extending more credit to lower‑income segments while simultaneously lowering initial limits, a balancing act that reflects both demand and caution.

The uptick in loan balances coincides with a gradual rise in delinquency rates, underscoring the fragility of this credit segment. As wages lag behind inflation, borrowers increasingly rely on debt to bridge cash‑flow gaps, raising the probability of missed payments. Lenders must therefore tighten underwriting standards and monitor portfolio health closely, especially as credit‑limit reductions may constrain consumer spending and amplify repayment stress.

Looking ahead, TransUnion projects a modest 5.7% increase in new unsecured loans for 2026, alongside 4% growth in mortgages and refinancings, suggesting a shift toward more traditional credit products as refinancing opportunities emerge. Conversely, auto loan volumes are expected to contract by 1.5% after a previous surge driven by tariff avoidance. Financial institutions should calibrate risk models to these evolving dynamics, balancing growth ambitions with prudent credit risk management to navigate the coming cycle.

Subprime demand drives US loan growth to new heights

By Tatiana Bautzer

New York — Robust demand from subprime customers spurred growth in US unsecured loans last year with their combined balances surging 10% to a new high of $276 bn, according to TransUnion’s Credit Industry Insights Report.

About 26.4 million consumers carried those loans since end‑December, up from 24.5 million a year earlier.

“As interest rates began to fall many consumers are consolidating their credit card balances into unsecured loans,” said Michele Raneri, vice‑president and head of US research and consulting at TransUnion.

Lower‑income consumers are also using these loans as a stopgap measure to deal with higher costs of living that have not been followed by similar raises in wages, she said.

Credit card issuers have increased lending to lower‑income consumers, with total balances rising 4% last year to $1.15 trillion. But they have reduced initial credit limits to deal with the risk, the report said. Delinquency rates have been slowly rising over the past quarters.

Credit markets

TransUnion forecasts slower growth this year for the volume of new credit extended.

Raneri said the credit markets are now going back to more “normal” growth levels after strong fluctuations since the pandemic.

The credit bureau expects a 5.7% rise in new unsecured loans in 2026 as well as a 4% rise in mortgages and a 4.2% climb in home refinancings.

“People that have recent mortgages taken with higher interest rates are starting to have access to refinancing and we expect that demand to grow,” TransUnion’s vice‑president said.

Auto loans are expected to shrink 1.5% this year after having risen about 5% last year with consumers accelerating purchases to avoid the effect of import tariffs.