More Subprime Borrowers Are Missing Loan Payments
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. In March, those delinquencies rose month over month for the eighth time in a row, nearing their prepandemic levels. Rising delinquencies were inevitable following their decline during the pandemic, many lenders and analysts said. Even so, the increase is getting attention from investors partly because the Federal Reserve, facing the highest inflation since the early 1980s, is embarking on what is expected to be the sharpest series of interest-rate rises in years. Higher loan delinquency figures can indicate stress on the part of consumers whose spending is a significant driver of economic activity.
Fears that rising rates will throw the economy into recession have fueled the worst start of the year for stocks in decades. A poor earnings season for major U.S. retail chains has intensified those concerns this week, prompting large declines in major retail shares and sending the Dow Jones Industrial Average to its steepest drop of the year Wednesday. Delinquencies on subprime car loans and leases hit an all-time high in February, based on Equifax's tracking that goes back to 2007. Many people, including those with less-than-perfect credit, paid off debts and built up savings during the pandemic, a surprising outcome considering that lenders at first thought borrowers would default en masse when Covid-19 hit. The government's response, including stimulus payments and child tax credits, boosted many families' financial health.
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