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TransUnion study Consumers pay auto loans first
CHICAGO (4/9/12)--In 2011, consumers were more likely to pay their auto loans before their credit cards and mortgages, according to a TransUnion study.

The divergence in payment patterns--where consumers are increasingly apt to pay their credit cards before their mortgages--has continued for four straight years, according to TransUnion's Payment Hierarchy study update.

"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 added.

The TransUnion analysis looked at a sample of roughly four million consumers in each quarter of 2011 who had at least one open auto loan, one open credit card account 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:

  • 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; 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," Becker said.

This trend goes against the advice many credit union industry financial planners have given in the past--that mortgage payments should come first so the member doesn't risk losing the family home.

Auto loans have become the preferred payment because consumers need to get to work or look for employment. Also, a car loan is not a revolving loan--the impact of repossession is greater than the loss of a credit card, Becker explained.

"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 added. "In fact, negative equity has become increasingly common for homes, which may further contribute to the shift in payment preference to auto loans."


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