AFSA released its quarterly Consumer Credit Conditions (C3) Index, a survey of leading providers of consumer credit, including mortgages, vehicle financing, personal installment loans, and credit cards. The top line results:
- Higher-income households are pulling back on major financial commitments – by choice
- Lower-income families are borrowing out of necessity, not opportunity
- Lenders see reason for cautious optimism: potential policy relief could ease cost of funds and improve consumer credit conditions over the next six months
Lenders’ outlook for the next six months remained positive on balance, even as current conditions worsened. The Net Increasing Index (NII) for expected business conditions was +19.5, while the NII for current conditions slipped to -15 — lower than the -5.9 and -13.6 readings in Q3 and Q4 of 2025, extending a deteriorating trend that began mid-year.
Overall loan demand fell to its lowest NII since the survey launched in Q1 2024, at -14.6, as borrowers pulled back from large financial commitments. Subprime demand moved in the opposite direction, rising from +11.1 to +12.1, the highest reading in five quarters.
Overall loan performance improved significantly (NII of +4.9 vs. -23.3 in Q4), though subprime performance worsened for the third consecutive quarter, albeit at a slower pace (-9.7 NII).
Funding costs deteriorated sharply after the Federal Reserve paused rate cuts following its December meeting and long-term rates jumped, producing an NII of -5.0 versus +61.4 in Q4. Looking ahead, lenders expect modest improvement in funding costs (NII of +5.0) and increased loan demand across the credit spectrum (NII of +12.2 overall; +27.3 for subprime).
Vehicle finance lenders faced particularly difficult conditions. Overall business conditions held near Q4 levels (NII of -18.5), with cost of funds and customer demand also in negative territory. Their six-month outlook, while still positive at +7.1, has moderated from +18.2 in Q4 and +23.8 in Q3.
To see the full Q1 2026 analysis visit Case for Credit.