WSJ: More Sub-prime Borrowers Missing Payments

WSJ Headline: More Subprime Borrowers Are Missing Loan Payments

Subheadline: Borrowers with limited or troubled credit histories are defaulting on credit cards, car loans and personal loans

Consumers with low credit scores are falling behind on payments for car loans, personal loans and credit cards, a sign that the healthiest consumer lending environment on record in the U.S. is coming to an end.

The share of subprime credit cards and personal loans that are at least 60 days late is rising faster than normal, according to credit-reporting firm Equifax Inc. In March, those delinquencies rose month over month for the eighth time in a row, nearing their prepandemic levels.

Delinquencies on subprime car loans and leases hit an all-time high in February, based on Equifax’s tracking that goes back to 2007.

This bit about $UPST rhymes with what happened at $AFRM, the Buy Now, Pay Later firm:

Upstart Holdings Inc., Oportun Financial Corp. , and OneMain Holdings Inc., which facilitate or extend personal loans to people with limited credit histories or low credit scores, also reported increased delinquencies for the first quarter.

Upstart said on its earnings call last week that government stimulus led to a temporary overperformance of consumers. It recently reintroduced loan modifications for borrowers who are struggling to keep up with payments.

Consumers are dealing with a mixed bag of rising gasoline prices and rent, while employment and wage growth remain strong, Raul Vazquez, Oportun’s chief executive, said in an interview. “How that all mixes out we are all going to see in the next few months.”

I fear that the sub-prime loans that Upstart is promoting are quite likely to blow up in times of crisis. I avoid credit risk in my portfolio.

Denny Schlesinger

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