Gen Z borrowers loyal to lenders: report

A new study finds that younger consumers with shorter credit histories upgrade to higher tiers faster than similar older borrowers, while also showing a tendency to remain loyal to the same lender in the future.

Research looks at Generation Z and Millennials The research, conducted by Transunion and Open Lending, a provider of risk data and analytics serving the auto loan industry, points to opportunities for a younger generation of lenders as young people expand their credit files and eventually seek other loans, including mortgages loan.

“Many financial institutions are hesitant to extend loans to borrowers with smaller credit files and lower credit scores, who are often millennials and Gen Z,” Kevin Filan, senior vice president of marketing at Open Lending, said in a press release. .” Compared with older colleagues, this strategic consumer group shows great potential for upward credit liquidity. “

The study examined the histories of more than 4 million young consumers, including new credit borrowers with two or fewer loans, as well as their more mature peers. At least one trade loan must be an auto loan.

Research has determined that approximately 40% of Gen Z and Millennial borrowers return to the same type of bank or credit union they used to apply for auto loans in the past for future borrowing.

Additionally, the average Vantagecore credit score for returning Gen Z and Millennials rose from 653 to 666 in the two-year period from June 2021 to June 2023. In comparison, the average credit score for older borrowers with weak credit increased from 656 to 653 in the same two years.

“Financial institutions that intelligently address these ’emerging prime’ borrowers through comprehensive data analysis and decision-making can generate higher-yielding loan opportunities and long-term customer loyalty,” Phelan said.

While Gen Z and Millennials may have weaker credit histories to begin with, 22% eventually become “mature” consumers within two years, compared to 14% of Gen X and older borrowers. At the same time, the study also found that 30% of younger borrowers received a higher credit rating, compared with 22% of older borrowers.

For Gen Z and Millennials, the average time for a customer with weak credit to become a mature borrower with three or more lines on their report is 2.62 years, but for similar Gen X or older consumers, it takes 3.71 years .

Younger consumers who are still building their credit history are also likely to add loans at a faster rate, regardless of subsequent loan products.On average, across all possible liens, Gen Z and Millennials took their first loan and second loan 2.1 years and 3.1 generations apart

7% of young consumers’ established credit includes a mortgage. The most common loan types were car loans and credit or other bank cards, with both appearing in 90% of reports.

For banks and other home finance businesses, the research shows the promise of early marketing for Gen Z and younger Millennials, even if a mortgage may not be their short-term goal.Several studies over the past few years have consistently shown that Generation Z Prioritize homeownership Despite recent affordability and housing market challenges, and in the future. A study from the beginning of this century found 29 million Gen Z consumers may be looking for Purchase by 2026.

Recently, Servicelink discovered 63% of Gen Z respondents hope to buy a home in 2024even as interest rates surge to levels not seen in decades.

Although Generation Z has just entered the market, it seems that Recognize the benefits Becoming a homeowner helps them build wealth and strengthen their financial health, making them a potentially lucrative source of income for lenders.

“Research data shows that once they reach the important milestone of an affordable auto loan, thin consumers are able to grow into healthy prime borrowers,” said Satyan Merchant, senior vice president and head of auto and mortgage operations at Transunion. , in a press release.

“We believe financial institutions that help these deserving borrowers get on the path to financial health will be rewarded with long-term loyalty through subsequent credit products,” Merchant added.

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