SFN Blog

The Future of Subprime Lending in the US Market

Subprime lending means giving loans to people with low credit scores—typically under 620. In the U.S., these borrowers hold about 22% of all credit-card debt, which grew from around $99 billion in May 2021 to $233 billion by May 2025.

Also, nearly 35% of student loans are made to subprime borrowers, who account for 26% of origination balances. For auto loans, 17.6% of new loans go to subprime lenders, making up 13.9% of balances. These numbers show how widespread subprime lending is—so it’s not just one type of loan; it’s many, and it affects real people.

We will cover how subprime lending started, where it stands now, what trends are shaping its future, the risks, and what lies ahead. We’ll keep things simple, clear, and useful—without extra fluff.

Historical Context of Subprime Lending

Subprime lending grew in the mid-1990s when banks saw profit in serving people with poor credit. These loans offered higher interest rates because lenders accepted more risk.

Between 1994 and 2006, subprime mortgage originations soared from 5% (around $35 billion) to 20% (about $600 billion) of all mortgages. Most of these loans were bundled into mortgage-backed securities, which later turned toxic.

By March 2007, the total value of subprime mortgages was estimated at $1.3 trillion, with over 7.5 million outstanding loans. Delinquency and foreclosure rates rose fast—by mid-2007, over 25% of subprime ARMs were 90 days past due.

That crisis rocked the economy. It caused millions of foreclosures, hurt asset values, pushed unemployment up, and tightened lending across the board.

Current State of the Subprime Market

Let’s describe the state of the subprime market by categories:

Subprime Lending by Loan Type

  • Auto Loans: About 17.6% of new auto loans go to subprime borrowers, making up 13.9% of loan balances. That’s about 1.66 million loans and nearly $39 billion in balance.
  • Student Loans: Roughly 35% of student loan originations go to subprime borrowers, who hold about 26% of the total balance.
  • Personal Loans: As of Q1 2025, Americans owe $253 billion in personal loans across 24.6 million accounts—a 3.3% increase over one year.

Borrower Costs and Risks

Subprime borrowers pay more:

  • Used car loans: About 13.74% APR for subprime (score 601–660), vs. ~9% for near-prime 
  • Credit cards: Subprime borrowers pay around 20% APR, vs. 18% for those with better scores 

Over 5 years, subprime borrowers can pay $6,648 more in mortgage interest 

Delinquencies & Credit Challenges

Auto loan defaults are climbing:

  • 90-day delinquencies are back near 5% as of Q1 2025
  • Subprime auto loan defaults are high: in June 2025, a 6.31% 60-day delinquency rate, up from 5.62% in June 2024.

Also, millions saw their credit scores drop after student loan repayments resumed — over 2.2 million borrowers lost more than 100 points.

Emerging Trends Shaping the Future

The main trends are:

Fintech & AI

Technology is changing lending. Automated tools and fintech firms use new data (like rent and phone bills) to judge credit. This could widen access to loans.

Beyond Mortgages

Subprime lending is shifting:

  • Most originations are no longer mortgages.
  • Now, auto, student, personal, and BNPL loans carry more of the subprime load.

Regulatory Landscape & Challenges

The balance between expanding credit and protecting borrowers is tricky:

  • Agencies like CFPB, Fed, and OCC regulate lending standards.
  • States set rules, too—like payday loan caps.
  • The debate: help people borrow or keep them out of risky debt.

After the 2008 crash, rules like Dodd-Frank were added to keep lending in check. Going forward, we may see tighter oversight of nonbank and fintech lenders.

Credit scoring is also debated. These systems can be unfair—studies show racial disparities in scores and lending. That may push regulators to push for fairer scoring methods.

Risks and Opportunities Ahead

Check the main risks:

  • Defaults: If the economy weakens, more subprime borrowers could fail to pay.
  • Systemic risks: A wave of defaults in one sector could strain broader finance.
  • Reputation risks: Lenders could be accused of predatory practices.
  • New shocks: Things like job losses or major downturns can hit subprime borrowers hardest.

Also, the opportunities are:

  • Access to credit: Subprime lending can help people who might otherwise be shut out.
  • Innovation: Fintech tools can make small loans faster and more affordable.
  • ESG and ethics: There’s room for lending that’s fair, transparent, and socially responsible.

Outlook for the Next Decade

Here is what to expect:

Short-Term (2–3 years)

Expect cautious lending. Delinquencies may rise. Fintech gains traction with better credit models and risk tools.

Mid-Term (3–5 years)

Fintech likely dominates subprime lending. Regulation may catch up with standards for fairness. Nonbanks and digital lenders may continue growing.

Long-Term (5–10 years)

Subprime lending could become more mainstream—and possibly safer. Better tech, credit methods, and oversight may bring more stability. But new risks—like automation or data misuse, may arise.

Bottom Line

Subprime lending is big. Today it spans credit cards, auto loans, personal loans, and student loans. It can help people who otherwise struggle to borrow, but it carries higher costs and risks. Technology and fintech are changing how it works, making access easier but also raising concerns about fairness, oversight, and stability.

The future depends on innovation, smart regulation, and ethical practices. With the right balance, subprime lending can serve more people fairly and avoid repeating past mistakes.