A updated payments study from TransUnion, one of three nationwide credit bureaus, suggests that auto loans have supplanted credit cards as the monthly bill payments that consumers are most likely to make, indicating yet another shift in what had been previously understood as predictable consumer behavior.
“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.”
Becker explained that the first shift the consumer payments occurred when consumers moved from paying their mortgages first to paying credit card bills first. Becker explained this shift by noting that the decline in real estate values had undermined the value of homes in many consumers' minds, even if they were not under water on their mortgages. At the same time, credit card companies cutting back on credit lines and stopping making offers of new cards heightened the perception that credit cards needed to be kept current.
The TransUnion analysis looked at a sample of approximately 4 million consumers in each quarter of 2011 that had at least one open auto loan and one open bankcard and one open mortgage. The study found in each quarter that there was a clear preference for remaining current on auto loans, ahead of credit cards and mortgages. Specifically, of the consumers who were delinquent on any of these products included 9.5% who were delinquent on an auto loan while current on their credit cards and mortgages; 17.3% who were delinquent on a credit card while current on their auto loans and mortgages and 39.1% were delinquent on a mortgage while current on their auto loans and credit cards.
“In other words, the auto loan is seldom the first choice when a consumer has to decide which payment to miss. A few reasons why auto loans have become the preferred payment to make include 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.”