Once a symbol of financial catastrophe, subprime consumers are now showing signs of resilience and spending power that defy economic uncertainties, according to Goldman Sachs, with the bank highlighting several investment opportunities tied to the lower-income group.
In a note issued Wednesday, Goldman Sachs analysts led by George K. Tong said U.S. subprime consumers—typically defined as individuals with credit scores below 660—are holding up better than expected despite economic headwinds such as tariffs, inflation and high interest rates.
US Subprime Consumers Are Stronger Than You Think
"Our call is that subprime consumers are, and will remain, resilient, with positive spending growth and improving delinquency trends despite economic uncertainty," Tong said.
Consumer wealth in the bottom income quintile rose 7% year-over-year through May 2025. The labor market remains reasonably healthy, with unemployment at 4.2% in May, while debt service payments as a share of disposable income came in at 11.3%, below the 45-year average of 11.9%.
Household debt stood at 61% of nominal GDP in 2024, the lowest level since late 1999 and significantly under the 20-year average of 70%, suggesting consumers remain financially unburdened.
Goldman said subprime borrowers are actively adjusting their financial behavior by shifting away from discretionary and high-cost items, instead prioritizing essential purchases such as groceries, household goods and lower-cost alternatives.
This disciplined approach to spending reflects a prudent response to economic uncertainty—not distress.
Subprime Credit Metrics Show Positive Signs
Recent data shows a broad improvement in credit health across cards, auto loans and personal loans, suggesting that subprime consumers are stabilizing their financial positions.
Thirty-plus day card delinquencies among lower-income borrowers fell 0.23% year-over-year in the first quarter of 2025 to 4.5%, marking a key reversal after a prolonged period of rising late payments.
Deep subprime 60-plus day card delinquencies declined to 25.46% in May 2025, down from 27.42% a year earlier, the first sustained drop since late 2022.
In the auto segment, 60-plus day delinquencies among deep subprime borrowers slipped to 7.75% in May, now falling below the five-year average of 7.80%. This marks a turning point after nearly two years of worsening trends.
Similarly, deep subprime personal loan delinquencies fell from 15.27% to 14.25% in May, extending the string of year-over-year improvements that began in mid-2024.
Mortgages remain the only category showing slight deterioration, with deep subprime 90-plus day delinquencies rising to 12.92% in May, up from 11.59% a year ago, slightly above the five-year average of 12.88%.
Yet, the investment bank notes that overall mortgage delinquency remains exceptionally low at just 0.7% of outstanding balances, reflecting the relative health of the broader housing market.
Subprime Crisis? Not This Time – 8 Stocks To Watch
Goldman Sachs recommends eight stocks across various sectors that are well-positioned to benefit from this subprime resurgence:
- Fair Isaac Corp. (NASDAQ:FICO) – Buy-rated, $2,244 price target
With improving delinquency trends, FICO could see a pickup in credit originations and score inquiries. - Dollar Tree Inc. (NASDAQ:DLTR) – Buy-rated, $94 PT
Budget-focused consumers are helping drive growth, especially as DLTR boosts operational efficiency. - Philip Morris International Inc. (NYSE:PM) – Buy-rated, $190 PT
Steady demand for non-discretionary tobacco and ZYN products fuels growth, even in low-income segments. - Monster Beverage Corp. (NASDAQ:MNST) – Buy-rated, $72 PT
Energy drinks remain an affordable indulgence for subprime consumers, supporting revenue and margin expansion. - Affirm Holdings Inc. (NASDAQ:AFRM) – Buy-rated, $58 PT
As a leading Buy Now, Pay Later provider, AFRM is gaining from better credit and growing demand. - Block Inc. (NYSE:SQ) – Buy-rated, $57 PT
Block's Cash App and lending business is rebounding, supported by subprime borrower stability. - Capital One Financial Corp. (NYSE:COF) – Buy-rated, $242 PT
Credit card and auto segments are seeing improving delinquency trends and potential reserve releases. - Synchrony Financial (NYSE:SYF) – Buy-rated, $70 PT
With 28% of loans to subprime consumers, SYF is poised to benefit from improving net charge-off and delinquency data.
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