Consumer Credit Conditions (C3) Index Anticipates Tougher Times Ahead

Business conditions for consumer lenders fell to their lowest point on record in the third quarter of 2026, according to the American Financial Services Association’s latest Consumer Credit Conditions (C3) Index. Rising funding costs and growing strain among subprime borrowers drove the decline, and lenders expect the pressure to continue over the next six months.

The Net Improving Index (NII) for overall business conditions fell to -39.5 from -5.3 in the second quarter, the lowest reading since AFSA launched the survey. Nearly half of lenders (47.4 percent) said conditions worsened during the quarter. Fewer than one in 12 (7.9 percent) said they improved.

Funding costs posted the weakest result in the survey. The NII fell to -60.5 from -33.3, as more than 63 percent of lenders reported higher costs and only 2.6 percent reported relief. The Federal Reserve raised its benchmark rate in September for the first time since 2023, and the 10-year Treasury yield reached its highest level since 2007.

Lenders also reported clear signs of household financial stress. The NII for performance of outstanding loans fell to -29.7 from -18.4, and the NII for subprime loan performance dropped to -51.7 from -41.4, a new survey low. Nearly 59 percent of lenders that serve subprime borrowers said performance worsened.

Loan demand reversed after a strong second quarter. The NII for overall demand fell to -15.8 from +26.3, and subprime demand fell to -6.9 from +26.7.

“Lenders see household stress in their portfolios before it shows up elsewhere, and this quarter they saw a higher level than we’ve seen in the recent past,” said AFSA President and CEO Celia Winslow. “Families face real affordability pressures, and the cost of lending to them is climbing. Policymakers should weigh that before they adopt measures that shrink the supply of safe, reliable credit at the moment households need it most.”

Lenders’ six-month outlook offers reinforces this view: the NII for expected business conditions measured -28.9, also a survey low, with half of respondents expecting conditions to worsen. Lenders expect funding costs to deteriorate further (NII of -63.2, down from -25.0 last quarter). Expected demand for subprime credit held flat at 0.0, a sign that households on tight budgets will continue to need access to credit even as the broader market cools.

“Every current-condition measure we track came in negative this quarter, and each one fell from the second quarter,” said AFSA Chief Economist Tim Gill. “The jump in funding costs stands out. When lenders pay more to borrow, the consumers with the fewest options feel it first.”

Personal installment lenders reported a tough quarter, with negative readings on all six current-condition measures and an overall conditions NII of -55.6. Vehicle finance lenders reported the sharpest rise in funding costs (NII of -69.2), though subprime auto demand stayed modestly positive at +5.6.

AFSA surveyed 38 senior executives of its finance company members between late September and mid-October 2026.