After Slowing To 3%, Credit Union Lending Forecast To Accelerate In 2026
By CU Today Staff —
MADISON, Wis.—Credit union lending, stalled at roughly half its long-run pace, may be poised for a policy-driven rebound, according to TruStage’s Q4 Trends Report.
After growing just 3.0% on a seasonally adjusted annualized basis — well below the historical 7% average — loan balances are forecast to accelerate to 5.5% in 2026 and 6.5% in 2027 as rate cuts ripple through the system and repayments from the 2022 auto lending boom subside.
Credit union loan balances grow on average 7.0% per year over the long run, but today credit union loan balances are only rising at a 3.0% seasonally-adjusted annual rate due to high interest rates, large loan repayments, and economic uncertainty. However, as short-term interest rates fall another 50 basis points in 2026, and auto loan repayments from the 2022 auto loan boom slow, we are forecasting credit union loan growth to rise to 5.5% in 2026, and 6.5% in 2027.
“Federal Reserve chairman Jerome Powel likes to mention the ‘long and variable lags’ of monetary policy during his press conferences. Economists recognize there are at least 10 channels through which lower interest rates impact the real economy,” said TruStage Chief Economist Steve Rick. “One of the them is the growth rate of consumer credit. Short-term interest rates (specifically the fed funds interest rate) has already decreased 1.7 percentage points during the last 16 months. So, how do falling short-term interest rates affect credit union loan growth?
“Periods of falling Fed Funds interest rates, (2000-2004, 2007-2009 and 2019-2020) have a stimulative effect on overall credit union loan growth,” continued Rick. “A 5-percentage point decrease in the Fed Funds rate historically boosts credit union loan growth by 3.5 percentage points, albeit with a 2–year lag. This is, of course, the goal of today’s less restrictive monetary policy, which is to accelerate the rate of credit creation from below–trend growth to something closer to normal. This will engineer an economic soft landing; reducing inflation to 2% without causing a recession.”
Credit union credit card balances fell 1.9%, on a seasonally adjusted annualized rate in September and below the 5.5% long run average, as higher interest rates discouraged borrowers from carrying a balance and economic uncertainty reduced consumers desire to go further into debt. The slowdown in the growth rate of consumer credit outstanding demonstrates one of the channels of restrictive monetary policy, i.e., high interest rates reducing credit creation.
During the first 9 months of 2025, credit union consumer installment credit fell 1.0%, which is slightly less than the 1.9% drop reported during the first nine months of 2024. Overall credit union loan growth rose by only 3.8% so far this year, which is still better than the 2% growth rate reported in the first nine months of 2024, the report states.
For all lenders (banks, credit unions, finance companies) outstanding consumer credit rose by only $4.2 billion in November, according to the Federal Reserve, which is much lower than the average monthly pace of $15 billion growth reported during the years 2015 – 2019. This data series is known, however, for its significant volatility. Expect growth in consumer credit to rise in 2026 due to modest job growth, financial markets deregulation and falling interest rates.
Credit union new-auto loan balances fell 0.5% in the third quarter, which was better than the 1.4% drop reported during the third quarter of 2024. Year over year, new-auto loan balances are down 6% due to elevated auto loan repayments caused by the 2022 auto loan boom. On a seasonally–adjusted annualized basis, new-auto loan balances fell 5.1% in September.
Multiple factors, Rick explained, are driving the slowdown in credit union new-auto loan growth: First, credit union liquidity pressures have pushed loan-to-savings ratios to an elevated 84%, which caused some credit unions to pull back in lending. Second, manufactures have increased vehicle incentives and offer low-rate captive financing to entice auto buyers. Third, rising auto loan delinquency and charge off rates have prompted some lenders to tighten credit standards.
The effect of this lending slowdown can be seen in the number of new-auto loans as a percent of members in offering credit unions – the penetration rate – which fell to 6.6% in the third quarter, down from 6.9% last year. But on the bright side, the penetration rate is up from the 6.3% in pre–COVID 2019.
New vehicle sales rose 1.9% in December to 16.1 million units on a seasonally-adjusted annualized sales rate, up from the 15.8 million reported in November. December sales were down 4.9% from pace set in December 2024, and below the 17 million considered the healthy auto market equilibrium. Expect new vehicle sales to fall 1% in 2026 compared to 2025, due to tariff-driven rising auto prices, rising labor market risks, and less than average stock market returns.
The housing market closed 2025 on a stronger note as existing home sales rose 5% to a 4.35 million seasonally-adjusted annual rate in December from November and rose 1.4% from December 2024. Lower mortgage interest rates and an increase in for-sale inventory appeared to pull more homebuyers into the market. Currently the month’s supply of homes on the market has plummeted to 3.3 months, below the six months considered a balanced housing market.
Meanwhile home prices are still rising due to the tight housing market. Median single-family home prices rose 0.4% during the last year according to the National Association of Realtors. Over the long run, however, U.S. home prices rise at an annual pace of 4%. So, with home prices rising only 0.4% and inflation running around 2.8%, real home prices are now falling 2.4% year over year. Housing demand is expected to remain below its long-term trend of five million annual home sales during the next year due to unaffordability issues related to high home prices and high interest rates.
The contract interest rate on a 30-year, fixed-rate conventional home mortgage fell to 6.10% in January 2026, down from 6.19% in December 2025 and 6.96% in January 2025. The 10-year treasury interest rate fell 43 basis points to 4.20% in January 2026 from 4.63% in January 2025 due to the drop in inflation expectations (12 basis points) and real interest rates (31 basis points).
Credit union savings balances rose 0.7% in the third quarter of 2025, better than the 0.5% rise reported in the third quarter of 2024, as lower market interest rates made money market mutual funds less rate competitive relative to insured credit union money market deposit accounts. Credit union savings-per-member rose 3.0% during the last year, below the long run average of 4.2%.
During the year ending in the third quarter 2025 savings balances rose 5%, below the long-run annual average of 7%. Credit union money market deposit accounts were the fastest growing deposit category with 8.4% growth over the last year, followed by share certificates rising 6.9% and share draft balances rising 4.8%.
“The mix of credit union deposits has changed significantly over the last four years. Today share certificate balances make up 28.9% of all savings deposits, up from 14.4% in the third quarter of 2021. This shift to higher cost deposits was one factor increasing credit union cost of assets from 0.44% in 2021 to 1.84% today. We expect funding costs to fall in 2026 as the Federal Reserve lowers the fed funds interest rates 0.25% to 0.50%,” Rick said.
“We expect credit union savings balances to rise 6% in 2026, below the 7% long run average but better than the 5% reported in 2025, due to rising consumers’ real incomes, a rise in the personal savings rate (personal savings as a percentage of disposable personal income), and more competitive credit union deposit interest rates. This additional liquidity will be welcomed by many credit unions who faced tight liquidity conditions in 2025.”
The credit union loan delinquency rate (loans two or more months delinquent as a percent of total loans outstanding) rose to 0.94% in the third quarter of 2025, up from the 0.80% in March which is in line with the traditional seasonal pattern.
“Delinquency rates typically reach their nadir in any year’s first quarter as members use their tax refunds and bonus checks to catch up on any late loan payments. As the year progresses, delinquency rates slowly rise and reach their apex late in the fourth quarter,” Rick explained.
Credit union loan delinquency rates have been above their 0.75% long-run natural rate since October 2023. Nine factors, Rick said, explain the above normal loan delinquency numbers during the past two years: rising unemployment rates, falling consumer real wages, inflated credit scores during 2022-2023, student loan payment resumption, higher interest rates, high car insurance costs, high rent inflation, walk away auto repos, and a rather large denominator effect due to loan balances rising slower than the dollar amount of delinquent loans.
“Expect loan quality measures to improve during the next two years. Loan delinquency rates are expected to fall to 0.85% in 2026 and then to 0.80% in 2027, from the 0.94% posted in 2025. Vintage analysis shows that loans originated in 2022–23—when loan growth was at record highs and credit scores were inflated—have been the primary driver of elevated delinquencies. These vintages are now plateauing and will age out of the loan portfolio. Charge-offs are therefore expected to fall to 0.75% in 2026 and 0.65% in 2027, from the 0.80 reported in 2025, but still above the long-run average of around 0.50%. The denominator effect from improved loan growth will also help lower these ratios,” Rick said.
“As of September 2025, we estimate 4,419 credit unions were in operation, down 171 from September 2024. Year–to–date the number of credit unions fell by 131, more than the 109–decline reported in the first nine months of 2024. We expect around 170 to 175 credit union mergers in 2026, as many credit unions are merging for competitive advantage rather than financial distress, as indicated by most mergers citing expanded services as the primary reason to merge. Moreover, the cost of competing in digital banking is rising and credit unions are investing in AI-powered financial wellness tools, instant payments, and cybersecurity to stay ahead. Mergers provide the scale and scope of operations to fund these new initiatives,” Rick said.
Credit union consolidation and concentration are expected to rise above their long – run pace over the next few years. Since 1980, the number of credit unions has declined by roughly 3.5% each year but in 2025 they contracted at a 3.7% pace.
“If we apply the historical 3.5% exponential ‘decay’ rate to the current number of credit unions, 4,419, we should expect at least another 155 credit unions to exit the financial system in 2026. If we forecast out a little further, according to the laws of exponential decay, there will only be 2,167 credit unions in 20 years, half as many as there are today,” Rick said.
“Fortunately, credit union assets follow an average annual exponential growth rate of 7%. This means the time that it takes for credit union assets to double (currently $2.420 trillion) is only 10 years. So, 20 years from now in the year 2045 credit union assets could be 3.9 times bigger than today, or $9.4 trillion,” Rick concluded.
Originally reported by CU Today.