The American Financial Services Association’s Outlook Remains Positive

The American Financial Services Association (AFSA), the country’s largest and oldest national consumer credit trade group, 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. Here’s what it said:

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.

“Affordability remains a crucial issue for a sizable share of households,” said Tim Gill, AFSA chief economist and VP for research. “Inflation measures continue to be elevated while a sharp increase in fuel and energy costs threatens to offset fiscal stimulus stemming from lower taxes, increased refunds, and higher take-home pay.”

Gill added, “The good news is that the economy, measured by real GDP growth, is expanding at a modest pace. Similarly, growth in jobs, wages, and consumer spending are positive but muted.”

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 than in the second half of last year (-9.7 NII).

“The greater demand for subprime loans points to a need for access to safe and reliable credit for those who need it most,” commented Celia Winslow, President and CEO of AFSA. “The subprime loan performance highlights the financial strain on higher-credit risk groups, one of the salient realities of the current economic situation.”

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.