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AFSA Consumer Credit Conditions Index: A Mixed Yet Hopeful Q3

The American Financial Services Association (AFSA) has unveiled its Consumer Credit Conditions (C3) Index for the third quarter of 2025, revealing a nuanced landscape for consumer lenders. While the index reports a slight downturn in current conditions, an overall optimistic sentiment is emerging towards the future, shedding light on the complexities of the current economic climate.

Current Conditions

In the latest survey, the findings indicated a challenging quarter for consumer lenders, with a Net Improving Index (NII) registering at -5.9. This decline marks the first negative reading after a streak of four consecutive positive quarters. Tim Gill, AFSA's Chief Economist, commented on this shift, stating, "Consumer lenders faced headwinds in the third quarter as loan demand weakened and performance metrics deteriorated."

However, there is a noteworthy counterbalance to this downturn with the Federal Reserve's recent interest rate cuts. These cuts, reinstated in September, have provided a more favorable backdrop for financial conditions, prompting a significant boost in expectations for the months ahead.

Looking Ahead

The outlook for the next six months has improved markedly, with the NII soaring to +20.6, a substantial increase from 0.0 recorded in Q2, marking it as the strongest reading since Q4 2024. Lenders are projecting a rise in overall loan demand, forecasting a NII of +26.5, while funding costs are anticipated to improve substantially with a NII reaching +57.6. This reflects the favorable effects of decreasing interest rates continuously noted over the last five quarters.

Despite these promising forecasts, concerns linger about loan performance, particularly among subprime borrowers. The current loan performance NII has dipped to -8.8, with a significantly bleaker expectation for subprime loan performance at -44.4. This sharp contrast illustrates the stress being faced by lower-income consumers and those with higher credit risks.

Both sectors of vehicle financing and personal installment loans are sharing an optimistic outlook for the next six months, even amidst immediate challenges. Providers across these sectors are expressing positive expectations regarding demand and funding costs.

Survey Insights

The C3 Survey, conducted in October 2025, encapsulates the sentiments of consumer finance companies about key business indicators and the evolving lending landscape embracing both challenges and opportunities. The mixed results showcase a sector grappling with recent pressures while simultaneously nurturing a hopeful vision as market dynamics continue to unfold.

As the landscape of consumer credit evolves, all eyes remain on the recovery of loan demand and the responses that financial institutions will adopt in these testing times. This promising outlook, tempered by caution, marks a pivotal point for lenders and borrowers alike as they navigate the uncertainties ahead.