C3 Index Shows Consumer Lenders Turning Optimistic Despite A Challenging Third Quarter

The American Financial Services Association, the country’s largest and oldest national consumer credit trade group, released its quarterly Consumer Credit Conditions (C3) Index survey of leading providers of consumer credit, including mortgages, vehicle financing, personal installment loans, and credit cards. The C3 Index provides industry insights beyond what is available in other economic surveys or government statistical reports, and is the only national survey that provides a look into consumer lenders’ perceptions of business conditions and key business indicators, including how they see the personal economics environment evolving in the coming months.

AFSA Member Companies’ assessment of the current business environment turned slightly negative on balance in the third quarter of 2025, according to the results of AFSA’s latest Consumer Credit Conditions Index Survey. More respondents reported business conditions worsened than reported they improved which drove the Net Increasing Index (NII) – the percentage of respondents reporting conditions improved minus the percentage reporting they worsened – to a score of negative 5.9. This followed four consecutive positive quarters.

In contrast, respondents’ projected outlook over the next six months improved significantly and surged to its strongest reading since the fourth quarter of 2024 with an NII of +20.6.

“Against a complex economic backdrop which saw deterioration in labor market conditions together with an elevated, but stabilizing, pace of inflation, consumer lenders reported weakening loan demand in the third quarter compared to the second quarter,” said Tim Gill, AFSA chief economist and VP for research. “On the other hand, Q3 actions by the Federal Reserve to cut short-term rates, along with the continuation of a downward trend in long-term rates, contributed to an improvement in lenders’ funding costs. Looking ahead, signs of easing financial conditions, including further interest rate cuts, are fueling positive expectations for both overall and subprime loan demand and continued improvement in funding costs.”

Top Line Results

The business environment for consumer credit providers showed a modest degree of deterioration on net in the third quarter of 2025 compared to the second quarter. Nearly 21% of respondents reported that conditions improved, including 5.9% who indicated conditions improved considerably. This compares, though, to 26.5% claiming that conditions weakened, including 5.9% who claimed they worsened significantly.

Loan demand decreased on balance in the third quarter, with 35.3% of participants claiming it worsened compared to 23.5% saying it improved. The NII measured -11.8, down from positive readings in each of the last three quarters. With respect to subprime loan demand, 40.7% reported a decrease compared to 18.5% reporting an increase. The NII was -22.2, well below the NII of +9.4 in the second quarter.

The NII for funding costs, though, was solidly in positive territory for the fifth consecutive quarter. At +42.2, it increased from +26.3 in the previous survey.

The NII for outstanding loan performance was -8.8, flipping into negative territory from +17.9 and +9.1 in each of the two previous surveys. When asked about subprime loan performance, 32.1% of respondents stated it worsened while 17.9 said it improved. The NII was -14.3, lower than the +8.8 and +8.1 reported, respectively in the second and first quarters.

Looking ahead, more than 41 percent of respondents expect overall business conditions to improve over the next six months compared to 20.6 percent who expect them to deteriorate. Just over 38 percent of respondents expect conditions to remain basically the same. The NII was +20.6, up from 0.0 in the previous survey but lower than the survey’s high-water mark of +50 in the fourth quarter of 2024.

Expected loan demand remained positive on balance in the third quarter, with the NII improving to +26.5 from +10.5 in the second quarter. The NII for expected subprime loan demand was also in positive territory at +14.8 but represented a decrease from the previous quarter when it measured +21.2.

The NII for expected cost of funds measured +57.6, up from +27.0 in the previous quarter.

The NII for expected loan performance slipped to -8.8 from -2.7 in the second quarter and was substantially lower than the reading of +51.2 in the fourth quarter of last year. The NII for expected subprime loan performance was -44.4, down sharply from -14.7 in the previous survey.

“Signs of consumer stress are evident in the third quarter results, but lenders feel good about the direction that the economy is headed driven by a lower interest rate environment,” commented Celia Winslow, President and CEO of AFSA. “The divergence between overall and subprime loan performance expectations highlights the particularly challenging situation of lower-income and higher-credit risk groups in the current and near-future economic environment and are broadly consistent with other measures of credit delinquency.”