The delinquency picture was mixed in last year’s third quarter, as delinquencies in closed-end loans (like personal or auto loans) rose while delinquencies in key open-end loans (like credit cards) fell, according to results from the latest American Bankers Association Consumer Credit Delinquency Bulletin. Overall, delinquencies fell in 5 and rose in 5 of the 11 individual consumer loan categories tracked by ABA. One category (indirect auto loans) remained unchanged.
The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, rose 12 basis points to 1.68 percent of all accounts, but remains well below the 15-year average of 2.15 percent. (See Historical Graphic.) The ABA report defines a delinquency as a late payment that is 30 days or more overdue.
“Delinquencies remained remarkably low for this late in the economic cycle,” said James Chessen, ABA’s chief economist. “The very modest increase in closed end loan delinquencies reflects a slow movement back toward more normal levels. Jobs remain plentiful and incomes continue to rise, which has helped boost consumer confidence. The bottom line is that consumers are feeling comfortable with their finances and have a proven record of successfully meeting their financial obligations over the last several years.”
Delinquencies in bank cards (credit cards provided by banks) fell 5 basis points to 2.62 percent of all accounts and remain significantly below their 15-year average of 3.62 percent.
“Consumers continue to take a disciplined approach to managing their credit cards, which has kept delinquencies in this category near historical lows for more than five years,” Chessen said.
Delinquencies fell in one home-related category and rose slightly in the other two. Home equity loan delinquencies fell 8 basis points to 2.42 percent of all accounts, dipping further under their 15-year average of 2.93 percent. Home equity line of credit delinquencies edged up 1 basis point to 1.08 percent of all accounts and remain below their 15-year average of 1.18 percent. Property improvement loan delinquencies rose 13 basis points to 1.08 percent of all accounts, but also remain well below their 15-year average of 1.32 percent. “Home-related delinquencies continue to show overall improvement as the housing market gains strength,” said Chessen. “With higher property values and greater home equity, people are well-positioned and motivated to ensure their loan payments remain current.”
Delinquencies in indirect auto loans (those arranged through a third party such as an auto dealer) were unchanged at 1.84 percent of all accounts, well below their 15-year average of 2.19 percent. Delinquencies in direct auto loans (those arranged directly through a bank) rose 8 basis points to 1.12 percent of all accounts, but remain well under their 15-year average of 1.55 percent.
Chessen is optimistic that continued economic growth and consumer discipline will keep delinquency rates stable in the year ahead.
“We expect tax reform will improve the economy by creating more job opportunities and augmenting wage growth,” Chessen said. “That extra boost, combined with consumers’ continued financial discipline, should help keep delinquencies low in the near future.” (See Economic Charts.)
The third quarter composite ratio is made up of the following eight closed-end loans. All figures are seasonally adjusted based upon the number of accounts.
Closed End Loans
- Composite Ratio rose from 1.56 percent to 1.68 percent.
- Home equity loan delinquencies fell from 2.50 percent to 2.42 percent.
- Marine loan delinquencies fell from 0.95 percent to 0.94 percent.
- Mobile home delinquencies fell from 5.08 percent to 4.97 percent.
- Indirect auto loan delinquencies remained at 1.84 percent.
- Direct auto loan delinquencies rose from 1.04 percent to 1.12 percent.
- Personal loan delinquencies rose from 1.52 to 1.90 percent.
- Property improvement loan delinquencies rose from 0.95 percent to 1.08 percent.
- RV loan delinquencies rose from 0.93 percent to 0.96 percent.
In addition, ABA tracks three open-end loan categories:
Open-End Loans
- Bank card delinquencies fell from 2.67 percent to 2.62 percent.
- Non-card revolving loan delinquencies fell from 1.59 percent to 1.57 percent.
- Home equity lines of credit delinquencies rose from 1.07 percent to 1.08 percent.
Consumer Tips
For borrowers having trouble paying down debts, ABA advises taking action — sooner rather than later — to solve debt problems. Proven tips are listed below. Additional consumer information on budgeting, saving, managing credit and more is available at ABA.com/Consumers.
- Talk with creditors – the sooner you talk to them, the more options you have;
- Don’t charge more purchases until your problems are solved;
- Avoid bankruptcy – it’s a short-term solution with long-term consequences; and
- Contact Consumer Credit Counseling Services at 1-800-388-2227.
Glossary
Indirect auto loan: loan arranged through a third party such as an auto dealer.
Direct auto loan: loan arranged directly through a bank.
Delinquency: late payment that is 30 days or more overdue.
Bank card: a credit card provided by a bank.
Closed-end loan: a loan for a fixed amount of money with a fixed repayment period and regularly scheduled payments.
Open-end loan: a loan with a fixed amount of available credit but a balance that fluctuates depending on usage such as a line of credit.
Non-card revolving loan: an unsecured, open-end loan that is not linked to a credit card. Examples may include lines of credit for overdraft protection or check credit.