Auto Loans Get Paid Ahead of Credit Cards, Mortgages: TransUnion

Consumers were more likely to pay their auto loans before their credit cards and mortgages in 2011, according to an update to a study by the credit bureau TransUnion.
The so-called “Payment Hierarchy” update also found that the consumer habit of increasingly paying off  credit cards before mortgages has continued for four straight years.
But the newest insight into payment trends is the importance placed on auto loans.
“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 Ezra Becker, vice president of research and consulting in 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 TransUnion analysis looked at a sample of approximately 4 million consumers in each quarter of 2011 that had at least active auto loan, one open bank card and one mortgage.
Of the consumers who were delinquent on any of these products:

  • 9.5 percent were delinquent on an auto loan while current on their credit cards and mortgages
  • 17.3 percent were delinquent on a credit card while current on their auto loans and mortgages
  • 39.1 percent were delinquent on a mortgage while current on their auto loans and credit cards

Reasons why auto loans have become the preferred payment include the need for an auto to get to work or look for employment. Moreover, an auto loan is not a revolving loan, so the impact of repossession is greater than the loss of a credit card, Becker said.
“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,” Becker said.

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