Collector - August 2017 - 8
DELINQUENCY RATES: CREDIT CARDS, MORTGAGE
LOANS, AUTO LOANS & UNSECURED PERSONAL LOANS
Making Debt Personal
Consumers are prioritizing personal loan payments over other debts.
ebt is a major roadblock to many
American households' financial
goals, but when struggling
consumers are faced with the decision of
which debts to pay, they often prioritize
payments on unsecured personal
loans over mortgages, auto loans and
credit cards, according to a study from
From 2009 through 2015, TransUnion
observed the yearly credit performance
of consumers who possessed at least one
active auto loan, credit card, mortgage
and unsecured personal loan, and the
consumer behavior trends they uncovered
shocked some experts.
For more than 10 years, consumers with
an auto loan, credit card and mortgage
have prioritized their auto payments.
Mortgages have traditionally been the
second payment made, followed by credit
cards, the study finds.
"It is quite surprising to us that, for
most struggling consumers, unsecured
personal loan payments are prioritized
over other prominent credit products such
as mortgages and auto loans," said Ezra
Becker, senior vice president and head of
research for TransUnion's financial services
Why do consumers prioritize personal
loan repayment over their other loans?
Becker suggested that borrowers may feel
they can get a quick win with these loans
even when they are struggling, and there is
a clear, near-term end to the obligation-a
light at the end of the tunnel, in a sense.
"In contrast, auto loans and mortgages
have much longer terms, and credit cards
have no set end date," she said. "Finding
an opportunity to pay a debt in full can
be a powerful motivator for a struggling
consumer. We believe the relatively short
duration of these loans-usually less than
30 months-is a key factor in the decision
process of consumers."
Data from TransUnion supports this
explanation, revealing that while unsecured
personal loans originated in the fourth
quarter of 2016 had an average term of 28
months, auto loan terms averaged 60 months
and mortgages averaged 230 months.
Until the Great Recession hit in 2008,
consumers prioritized payments on their auto
loans more than mortgages and credit cards.
Total household debt today has surpassed
the peak reached during the Great
Recession, however mortgages now have a
much smaller share than in 2008. Auto and
student loans have increased in their share,
and balances are increasingly shifting toward
more creditworthy and older borrowers,
according to the Federal Reserve Bank
of New York's report on debt and credit
published earlier this year.
Delinquent debt since the Great
Recession is trending differently, according
to Donghoon Lee, research officer at
the Fed. "While most delinquency flows
have improved markedly since the Great
Recession and remain low overall, there
are divergent trends among debt types,"
Lee said. "Auto loan and credit card
delinquency flows are now trending
upwards, and those for student loans
remain stubbornly high."
Time will tell if student loans realign U.S.
consumers' repayment priorities.
3.11% 3.23% 3.05% 2.87% 3.65%