The most hazardous loan types are now being taken out by a greater proportion of consumers than at any point in the last ten years, indicating increasing financial hardship for a significant number of people in the U.S.
TL;DR
- Subprime and super prime loan categories are increasing, signaling a K-shaped economy.
- Subprime borrowers face heightened financial strain, with rising delinquencies and foreclosures.
- Super prime borrowers are increasing, securing better loan terms and driving economic growth.
- This divergence in credit risk suggests economic trouble as the middle class shrinks.
The share of consumers taking on subprime loans accounted for 14.4% of borrowers in 2025’s third quarter, up from 13.9% from the same period in 2024 and the highest since 2019, according to a TransUnion report released On Monday, an analysis of consumer credit data was conducted. Roughly a quarter of the U.S. According to Apollo chief economist Torsten Sløk, referencing Federal Reserve Bank of St. Louis data, a portion of the population is subprime, possessing a FICO credit score below 660. Louis.
During the pandemic, the proportion of consumers categorized as subprime credit risks decreased, largely due to government stimulus measures that enabled many Americans to reduce their outstanding debts. As the subprime segment expands again, it indicates that many individuals are experiencing heightened financial strain: The proportion of subprime borrowers who are at least 60 days delinquent on their auto loan payments has reached 6.43%, doubling Fitch Ratings reported that this was the situation in 2021. According to ATTOM, a property data firm, August saw the sixth consecutive month of increasing home foreclosure filings when compared to the previous year.
However, the difficulties faced by numerous borrowers don't encompass the complete situation. TransUnion also reported a growing share of super prime borrowers—which increased from 37.1% in 2019’s third quarter to 40.9% in the same period this year. The credit market has seen growth, with the number of super prime borrowers increasing by 16 million since 2019. Borrowers with superior credit scores tend to secure more advantageous loan conditions, including reduced interest rates and increased credit limits.
The report highlighted a seven-basis-point year-over-year decrease in consumer delinquencies, reaching 2.37%, which suggests an improvement in the financial well-being of consumers.
“We are seeing a divergence in consumer credit risk, with more individuals moving toward either end of the credit risk spectrum,” Jason Laky, executive vice president and head of financial services for TransUnion, said Within the document. “This shift suggests that while many consumers are navigating the current economic climate well, others may be facing financial strain.”
Signs of a K-shaped economy
Credit loan data aligns with what some economists are calling a K-shaped economy, one where higher-income earners are spending as they usually would on discretionary purchases like travel and premium goods, while lower- income earners cut back on dining out or trade down on purchases at the grocery store.
“We’re sort of moving in the direction of two kinds of players in the economic market out there,” Lucia Dunn, sports and society research professor of economics at the Ohio State University, told Fortune. “I’m not so worried about the super prime category going into debt, maybe buying a Lamborghini instead of a Porsche.”
Indeed, the Chicago Fed Advance Retail Trade Summary estimated retail sales excluding autos rose in September, building on 0.6% growth from July to August. Wealthier households' ongoing spending has been cited by economists as the reason for robust growth figures, despite persistent tariff concerns and a struggling job market, indicating a continuation of normal business operations. Last month, a Moody's analysis revealed that the lowest 80% of income earners have experienced a decline spent in line with inflation since the onset of COVID, whereas the top 20% have driven economic expansion.
“We are losing the middle class,” Dunn said. “And when you get to a society where there are a lot of people at the bottom and then a small group at the top, that’s a prescription for real trouble.”