Karishma Vanjani

Well-known consumer-lending firms have lost billions in market value as unease spreads among investors about the condition of private credit financing.

Since Sept. 19 -- that is when signs emerged that the auto-parts company First Brands was heading for bankruptcy, after the auto lender Tricolor did the same -- stock of Pagaya Technologies, a fintech firm that assists lenders in acquiring customers, has fallen 33%. Stock in the online lender Upstart is down 26%, while shares of Affirm and Klarna have lost 22% and 17%, respectively. The lender Sofi Technologies' stock is down 8%.

Together, the five companies had shed $17.4 billion in market capitalization as of the close on Wednesday, the day when the subprime auto lender PrimaLend Capital Partners declared bankruptcy.

Stocks have recovered on Thursday, but remain far from recouping their large losses. The bankruptcies of Tricolor and Primalend, who lend to consumers with lower credit scores, have made investors jittery about companies targeting high-risk borrowers.

About 53% of Affirms' borrowers have credit scores below prime. The minimum annual income required to be eligible for an Upstart loan is $12,000.

Morgan Stanley analysts say they "believe investors may be starting to focus too much on near-term trends" such as the worsening performance of loans, while underestimating the potential of long-term structural trends, at least in some lending companies.

In a 63-page report, James Faucette and his team detailed an optimistic view of the outlook for buy now, pay later, or services that let consumers spread out their purchase payments over a set period. BNPL is a key business for Affirm and Klarna.

U.S. BNPL purchase volume grew at a roughly 68% compounded annual growth rate from 2019 to 2024. And the business is likely to increase its share of the market over the medium term, partly as firms broaden distribution partners and zero-interest-rate loans take hold, the firm said.

Still, the bank rates both stocks at Equal-Weighted. "We could become more constructive if BNPL providers were able to demonstrate durable success" in attracting consumers with higher incomes and credit scores, Faucette and his team wrote.

Studies by the New York and Boston Federal Reserve banks have shown BNPL use is higher for lower-income consumers, who also happen to be the first to fall behind on paying their loans in a tough economy. Klarna and Affirm both declined to comment.

"Lots of dead canaries in the coal mine...," wrote Bear Traps Report author Larry MacDonald in a research note flagging the decline in lenders' stocks.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com.

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October 23, 2025 15:28 ET (19:28 GMT)

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