C3: Future Optimism Despite Q4 Challenges
Finance companies are growing increasingly optimistic about the consumer credit landscape over the next six months, with lender confidence rising for the second consecutive quarter, according to the latest Consumer Credit Conditions Index (C3) Survey.
The survey’s Net Improving Index (NII) for expected business conditions climbed to +29.5 in the fourth quarter of 2025, up from +20.6 in the third quarter and marking a dramatic turnaround from the 0.0 reading in the second quarter. More than 40 percent of respondents expect overall business conditions to improve over the next six months, with nearly 48 percent anticipating stable conditions.
“After navigating a challenging second half of 2025, AFSA member companies are cautiously optimistic that 2026 will bring improved conditions for both lenders and borrowers,” said AFSA President and CEO Celia Winslow. “While current conditions remain challenging, particularly for lower-income and higher-credit risk borrowers, we’re encouraged by these improved expectations.”
Key Indicators:
- Loan Demand Rebounds: Customer demand for loans returned to positive territory in Q4 with an NII of +2.3, reversing the -11.8 reading from the previous quarter. Subprime loan demand showed even stronger improvement, jumping to +11.1 from -22.2.
- Funding Costs Improve Dramatically: The NII for funding costs reached +61.4—the highest in the eight-quarter history of the survey—as Federal Reserve rate cuts and lower long-term rates provided significant relief to lenders.
- Loan Performance Expected to Improve: Looking ahead, lenders anticipate modest improvement in loan performance with an NII of +16.3—the first positive reading since Q4 2024. Expected subprime loan performance also turned positive at +5.6, a remarkable swing from -44.4 in the previous quarter.
- Personal Installment Loan Sector Shows Strength: Personal installment lenders reported particularly strong optimism, with all forward-looking measures in positive territory, including aggregate customer demand (+23.8), funding costs (+35.0), and loan performance (+19.0).
Both personal installment lenders and vehicle finance providers expressed broad optimism about business conditions over the coming months, anticipating that continued economic expansion and easing financial conditions will support growth in the first half of 2026. “Tax cuts are expected to provide households with increased budgetary capacity, while additional Federal Reserve rate cuts should continue to ease funding costs and stimulate consumer demand,” said AFSA Chief Economist Tim Gill.
Challenges Remain
The survey results also reflect the financial pressures many American households faced during the second half of 2025. The NII for current business conditions fell to -13.6 in Q4 from -5.9 in Q3, with loan performance metrics showing deterioration as labor market conditions weakened and inflation remained elevated.
January 30th, 2026