Auto Loan Delinquencies Fall to All-Time Lows

Consumers are more likely to keep their auto loans current than their mortgages.

September 12, 2012

Auto loan delinquency rates are at an all-time low of as consumers strive to keep their auto loans in good standing—even more so than their mortgages, according to TransUnion.

“Consumers now value their auto loans more than their credit cards and mortgages,” says Peter Turek, automotive vice president in TransUnion’s financial services business unit. “This is partly due to the need for transportation to get to work or to seek employment in a difficult job market.”

In addition, consumers with car loans now have more equity in their vehicles than they did in the past because of the strong used car vehicle market, Turek adds. “Consumers want to keep their auto loan relationships in good standing.”

The national auto loan delinquency rate (the ratio of borrowers 60 or more days past due) dropped to 0.33% during the second quarter of 2012, down from 0.36% during the first quarter, TransUnion reports. On a year-over-year basis, auto loan delinquencies declined 25% from 0.44% during the second quarter of 2011.

Between the first and second quarters of 2012, 37 states experienced declines in their auto loan delinquency rates, as did 58% of metropolitan areas.

“It’s impressive to see auto loan delinquencies remain so low despite a growing proportion of new loans going to nonprime consumers,” Turek says. During the second quarter, the percentage of new auto loans to nonprime borrowers (those with a VantageScore® credit score lower than 700 on a scale of 501 to 990) increased by 9%.

Over the past two years, the percentage of new auto loans to nonprime borrowers has grown more than 20%.

“With the increase in nonprime borrowing, we do anticipate that auto loan delinquencies will begin to increase,” Turek says. “We are at such a low auto loan delinquency level that a slight rise through the end of the year should be expected, though the overall rate will likely remain relatively low.”

Payment priorities changing

TransUnion’s research unearthed a divergence in consumers’ payment patterns, where borrowers are increasingly likely to make their credit card payments before their mortgage payments.

Only recently have consumers begun to place a higher priority on their auto loan payments, says 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,” Becker reports. “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 about four million consumers that had at least one open auto loan, credit card, and mortgage. The study found there was a clear preference for remaining current on auto loans, ahead of credit cards and mortgages.

Specifically, among the consumers who were delinquent on any of these products:

While the payment hierarchy is consistent across states, it’s influenced by regional economics and consumer preferences, TransUnion reports. The preference for paying auto loans, for example, is more pronounced in Florida and Michigan, which have seen severe drops in home values, and less pronounced in Texas, where home prices have declined less.