Consumers may be slipping on the credit card and mortgage bills but a new study finds they're trying to keep up on the car loan.
The weak economy and high unemployment have stretched the budget to the breaking point for many Americans. Struggling to decide which bills they can pay, a new study finds a surprising number of people will go delinquent on mortgage and credit card bills before lapsing on their monthly car loans.
Traditionally, American consumers have put a high priority on paying their mortgage on time, no surprise since losing one’s home is a life-changing experience. Credit card debt, with traditionally high interest rates, have followed close behind. But at a time when people may need a car more than ever simply to find a job, there has been a “reversal in payment patterns,” according to TransUnion Vice President Ezra Becker.
“With unemployment remaining high and real estate values remaining stagnant or further depreciating, consumers continued to pay their credit cards ahead of their mortgages,” said Becker, who is in charge of research and consulting at TransUnion’s financial services business unit. “However, the importance of their auto loans appears to have trumped even the value they place on their credit cards.”
The study looked at 4 million Americans who had at least one open auto loan, one active credit card and at least one open mortgage during 2011. It found that there was a clear preference for keeping the car loan current, even if that meant falling behind on the other debts.
Among the specific findings:
* 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.
TransUnion suggested there are several reasons why consumers are more worried about falling behind on their car loans.
For one thing, there’s “the need for an auto to get to work or look for employment, and the fact that an auto loan is not a revolving loan — the impact of repossession is greater than the loss of a credit card,” added Becker. “In addition, consumers may have equity in their autos after several years of payments that they are looking to preserve — which is no longer the case for most homes. In fact, negative equity has become increasingly common for homes, which may further contribute to the shift in payment preference to auto loans.”
Another factor: fall behind on your car loan and you could see the repo-man pull into your driveway in as little as 90 days. These days, home foreclosures are taking longer than ever because the courts are so backed up and may give a consumer as much as two to three years to try to catch up.