Subprime loaning is seeing a major spike. What is subprime loaning or a subprime loan? Generally, it is giving a loan or credit to someone who is unworthy of it. Subprime loans are considered to be very risky and carry a greater than average rate of default. Subprime mortgages were one of the major causes of the housing collapse and the economic recession of 2008.
TransUnion, one of the major credit reporting agencies has found that the number of subprime borrowers has increased by almost a percentage point since last year. According to TransUnion, someone who is considered a subprime borrower will have a credit score below 660. Such as score is considered to be below average.
Another interesting statistic is that subprime balances are increasing instead of decreasing. TransUnion’s 2nd quarter report found that subprime borrowers are seeing their balance increase by an average of 14%. People who have higher credit scores, in other words non sub prime borrowers are seeing a reduction in their credit card balance on the other hand.
Is the trend of increasing subprime loaning of concern? The answer to this is yes and no. You will always have subprime borrowers. They are typically charged a higher interest rate to make up for the greater risk lenders take to offer them credit. The delinquency rate for subprime borrowers remains flat at around 11%. This means that bankruptcies or non repayment of loans by subprime borrowers is not increasing.
If the number of subprime borrowers increases significantly than this could be a sign of economic trouble and another bubble. The total number of credit card balances is increasing and so is the number of users. However, as long as the percentage of subprime balances and delinquency remains relatively low and stable, there is no major economic fears to be had.