What Loans Were Consumer’s Paying First in 2011?

Auto Loans were Paid First in 2011

TransUnion, one of the three consumer credit bureaus, released their latest Payment Hierarchy study update at the end o f March 2012.  This study found that in 2011, consumers paid auto loans first before credit cards and mortgages.   Consumers have been paying credit cards before mortgages for four years, but the priority shift to auto loans is new.

Auto loans became number one

“The reversal in payment patterns between credit cards and mortgages has been well documented, but our findings were illuminating because it had not been previously clear that auto loans were considered a higher priority by consumers than both credit cards and mortgages,” said Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit. “With unemployment remaining high and real estate values remaining stagnant or further depreciating, consumers continued to pay their credit cards ahead of their mortgages. However, the importance of their auto loans appears to have trumped even the value they place on their credit cards.”

Since housing values continue to decline and some are upside down in their mortgages, autos have been more important asset.  Cars are needed to get to work or to look for a job.  Since a car loan is secured, the car can be repossessed.  This means that all the money they have put into it is gone, especially if they have paid for it for several years. They don’t want to give up the money they have spent.  Losing a credit card is not as critical as the loss of a car.

Highlights

The study was based on approximately four million consumers in each quarter of 2011 that had at least one open bankcard, auto loan, and mortgage.  In each quarter the delinquencies were lower on auto loans than credit cards or mortgages, which was consistent in all states.  The results were as follows:

9.5% were delinquent on an auto loan while current on their credit cards and mortgages.

17.3% were delinquent on a credit card while current on their auto loans and mortgages .

39.1% were delinquent on a mortgage while current on their auto loans and credit cards.

Does this match your payment priority?

Credit Expert Witness, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Auto Loans, Credit Report, Credit Score, Debt, Money & Identity

This post was written by John Ulzheimer