Why More Subprime Borrowers Are Defaulting on Their Loans
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What is the main topic discussed in this episode?
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Here's your Money Briefing for Thursday, May 19th. I'm J.R. Whelan for The Wall Street Journal.
Which loan types are seeing rising delinquencies among subprime borrowers?
People with low credit scores got through the first year and a half of the pandemic relatively unscathed and were able to continue making their various monthly loan payments on time. But recently, they've been missing payments at an alarming rate.
It's car loans and leases, it's personal loans, and it's credit cards. All of these types of loans are seeing increases in late payments.
Coming up, we'll talk with our consumer lending reporter, Ana Maria Andriotis, about why defaults are up and what that could mean for people's ability to take out loans in the future. That's after the break.
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How much have subprime delinquencies increased and over what timeframe?
They want your identity. They want your innovation. ReliaQuest fortifies your business with agentic defense, AI that detects, contains, and eliminates cyber threats in minutes. It helps your security team move faster at the work that matters most to protect the business now and delivers insights to help them predict what's next. ReliaQuest, agentic defense for the enterprise. Learn more at ReliaQuest.com. That's R-E-L-I-A-Q-U-E-S-T.com.
A growing number of subprime borrowers or people with credit scores below 620 are falling behind on making their monthly loan payments. Why is that happening? And what will it mean for their personal finances going forward? WSJ consumer lending reporter Anna Maria Andriotis is here to explain. Anna Maria, thanks for being here.
Why did delinquencies stay low during the early pandemic despite risk concerns?
Great to be speaking with you.
So Anna Maria, can you just give us some more detail about what's going on right now? What types of loans specifically are subprime borrowers having trouble paying on time?
It's several loans. It's car loans and leases. It's personal loans and it's credit cards. All of these types of loans are seeing increases in late payments, specifically in the share of accounts that are behind on payments by at least 60 days. So in March, the share of subprime credit cards and personal loan delinquencies increased month over month for the eighth time in a row, nearing pre-pandemic levels. On a year-over-year basis, we've seen five months of consecutive increases. And so essentially what's playing out right now is we are coming off super low delinquency rates and missed payments are rising again.
You know, Anna Maria, it wasn't that long ago you and I discussed how many lenders had embraced subprime customers and subprime lending hit records last year. So what happened? What caused their ability to pay their bills to take such a hard turn?
There's been such wild swings in consumer credit, if you just really think about the things that have played out over the last couple of years. So when the pandemic started, there was this massive concern, legitimately so, that consumers would fall behind on many of their loans and that delinquency rates would shoot up and lenders basically tightened up and pulled back on extending credit, especially to people seeing that sort of being risky borrowers. What ended up happening, instead of there being a surge in delinquencies early on in the pandemic, government benefits, including stimulus payments, child tax credit,
How have stimulus payments and reduced spending affected subprime borrowers’ payment behavior?
the pullback overall in consumer spending because they had fewer places to go. All of this basically resulted in people being able to pay down many of their bills, to be on time with their payments. What I've been told by lenders is that delinquencies were artificially low because households had this extra money coming in from the government.
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:00–0:40
2
Which loan types are seeing rising delinquencies among subprime borrowers?
0:40–1:20
3
How much have subprime delinquencies increased and over what timeframe?
1:20–2:09
4
Why did delinquencies stay low during the early pandemic despite risk concerns?
2:09–4:03
5
How have stimulus payments and reduced spending affected subprime borrowers’ payment behavior?
4:03–5:05
6
What role does inflation and higher living costs play in recent missed payments?
5:05–6:26
7
How could rising subprime defaults affect access to credit and borrowing costs?
6:26–7:05
8
What broader risks do lenders see if delinquencies continue to climb beyond subprime groups?
7:05–7:31
Speakers
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