Subprime Consumer Resilience Tested as Earnings Season Approaches

Consumer spending in the United States has proven resilient through a volatile year, but cracks are emerging at the low end of the credit spectrum.

With third-quarter earnings season beginning later this month, the performance of the nation’s biggest banks will provide new details on how subprime consumers are weathering financial pressures.

The results will help determine whether resilience and the reliance on credit, which have carried households this far, can continue.

Last quarter’s earnings painted a cautiously optimistic picture. While credit card delinquencies rose, banks said loan-loss provisions remained within historical ranges. That narrative suggested consumers, including even those under financial strain, were finding ways to meet obligations.

Subprime borrowers were demonstrating resilience, but there were warning signs that inflationary pressures and elevated borrowing costs could eventually test those limits.

The latest market signals suggest that pressure may be mounting.

“[A] series of small shocks in the world of consumer credit have combined to rock companies that service the most financially vulnerable Americans,” Bloomberg reported Friday (Oct. 3).

The collapse of subprime lender Tricolor Holdings last month, tied to weak used car sales, signals rising credit stress among low-income households, but the fallout is likely contained to the niche subprime market rather than posing a systemic risk.

The PYMNTS Intelligence report “High Credit Card Denial Rates Force Subprime Borrowers to Turn to Alternative Options” provided insight into how pressures are manifesting. Subprime borrowers, who are defined as those with credit scores below 620, face denial rates for credit cards that are 2.3 times higher than those of super-prime applicants. Nearly 29% of subprime consumers have applied for and been denied a credit card, compared to 12% of super-prime consumers. Even so, many are using credit strategically to try to improve their financial standing.

The report found that 57% of subprime borrowers have access to credit cards, and 21% use them for essential purchases specifically to raise their credit scores. Another quarter of low-score consumers use credit for nonessential purchases with the same goal, demonstrating a willingness to use available tools for long-term improvement.

However, limited access to mainstream credit means many subprime borrowers are turning to alternative options. The report revealed that 40% of them have applied for buy now, pay later (BNPL) services, compared to 27% of super-prime consumers, and they are 2.1 times more likely to apply for payday or credit-builder loans. These products can ease cash flow gaps but often come with higher fees and interest rates, leaving already vulnerable households more exposed.

These trends underscore strain and resilience. Subprime consumers remain eager to participate in the credit system. The PYMNTS Intelligence report found they are 3.6 times more likely than super-prime borrowers to want a new credit card. This suggests determination to move up the financial ladder. At the same time, reliance on alternative lending highlights the risks of exclusion from traditional banking channels.

The real test will come as banks report third-quarter results starting Oct. 14, when JPMorgan Chase kicks off earnings season. Analysts and investors will watch to see whether rising delinquencies and loss provisions confirm that subprime borrowers are hitting a breaking point, or whether, once again, they find a way to endure.

The upcoming earnings reports will provide more than just headline numbers. Analysts will be parsing loan-loss provisions, especially for credit cards and auto loans, for any signs of acceleration in defaults. They will also look for shifts in BNPL exposure and unsecured personal lending, where subprime consumers are more heavily represented, and track delinquency trends across income tiers. Together, these indicators will show whether resilience among subprime households remains intact, or if the cracks visible today are widening into something larger.

For now, the story is one of determination under pressure. The resilience of subprime consumers has surprised before, but with economic uncertainty mounting, that resilience will face a challenge.

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