For the first time, credit unions reported the total amount of loans they have on their balance sheets with interest rates in excess of 15 percent. These loans can be classified as sub-prime loans. As of June 30, U.S. credit unions had $6.6 billion in sub-prime loans outstanding. 4,049 credit unions, or 45 percent of the industry, reported having sub-prime loans on their books.
Credit unions engage in sub-prime lending to serve members with poor or blemished credit. Instead of declining the member’s loan application, the credit union provides them a loan at a higher interest rate to offset the risk of default. The average interest rate on a sub-prime loan for credit unions is 16.8 percent. For credit unions that offer sub-prime loans, these loans make up about 2.0 percent of a credit unions’ loan portfolio.
Nearly 75 percent of all credit unions above $50 million offer these types of loans and we can expect this number to increase in upcoming quarters. There are over $100 billion in sub-prime loans generated annually, so credit unions have plenty of opportunity to increase their market share in this market.
To find out who the industry leaders are in subprime lending, check out our Peer-to-Peer software. Click here to learn more.