WASHINGTON – The delinquency picture was mixed in last year’s fourth quarter, as delinquencies in closed-end loans (like auto loans) rose while delinquencies in open-end loans (like credit cards) fell, according to results from the American Bankers Association’s Consumer Credit Delinquency Bulletin. Among the 11 individual loan categories, delinquencies rose in all eight closed-end categories, but fell in all three open-end categories compared to the previous quarter.
The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, rose 10 basis points to 1.51 percent of all accounts – remaining well below the 15-year average of 2.19 percent. (See Historical Graphic
.) The ABA report defines a delinquency as a late payment that is 30 days or more overdue.
“We’ve seen a slow rise in closed-end delinquencies over the last two quarters driven by small increases in auto delinquencies,” said James Chessen, ABA’s chief economist. “Across all categories, delinquency levels have remained relatively low due to solid job growth, rising income and consumers’ continued efforts to manage their finances carefully.”
Delinquencies in indirect auto loans (those arranged through a third party such as an auto dealer) rose 13 basis points to 1.75 percent of all accounts, remaining below their 15-year average of 2.22 percent. Delinquencies in direct auto loans (those arranged directly through a bank) rose 7 basis points to 0.94 percent of all accounts, remaining well under their 15-year average of 1.63 percent.
“Even with recent increases, auto delinquencies have remained remarkably low for the last five years amid booming car sales,” Chessen said. “When that new car smell disappears, there is still a monthly payment that needs to be made. Thoughtful and realistic budgeting over the life of the loan is the best protection against becoming overextended.”
Delinquencies in bank cards (credit cards provided by banks) fell 5 basis points to 2.69 percent of all accounts, staying significantly below their 15-year average of 3.66 percent.
“Consumers’ disciplined use of credit cards continued, which kept debt levels manageable and delinquencies near historical lows,” Chessen said.
Delinquencies fell in one home-related category and rose modestly in the other two. Home equity line of credit delinquencies fell 10 basis points to 1.06 percent of all accounts and are now below their 15-year average of 1.15 percent. Home equity loan delinquencies edged up 2 basis points to 2.61 percent of all accounts, holding under their 15-year average of 2.85 percent. Property improvement loan delinquencies rose 4 basis points to 0.98 percent of all accounts.
“As the housing market continues to improve, so do home-related delinquencies,” said Chessen. “With home prices on the rise and borrowers better positioned to honor their debts, we expect that home-related delinquencies will continue their gradual downward trajectory.”
Chessen is optimistic that the improving economy will keep delinquency levels stable for the foreseeable future.
“Job growth across a wide swath of industries – from services to manufacturing to high tech – is the key to maintaining low and stable delinquency rates,” Chessen said. “Lower taxes and infrastructure spending would add fuel to the economic expansion, pushing wages higher and helping to ease consumers’ financial worries.” (See Economic Charts
The fourth quarter 2016 composite ratio is made up of the following eight closed-end loans. All figures are seasonally adjusted based upon the number of accounts.
- Composite Ratio rose from 1.41 percent to 1.51 percent.
- Home equity loan delinquencies rose from 2.59 percent to 2.61 percent.
- Direct auto loan delinquencies rose from 0.87 percent to 0.94 percent.
- Indirect auto loan delinquencies rose from 1.62 percent to 1.75 percent.
- Marine loan delinquencies rose from 0.97 percent to 0.99 percent.
- Mobile home delinquencies rose from 3.11 percent to 4.07 percent.
- Personal loan delinquencies rose from 1.46 to 1.56 percent.
- Property improvement loan delinquencies rose from 0.94 percent to 0.98 percent.
- RV loan delinquencies rose from 0.96 percent to 1.03 percent.
In addition, ABA tracks three open-end loan categories:
- Home equity lines of credit delinquencies fell from 1.16 percent to 1.06 percent.
- Bank card delinquencies fell from 2.74 percent to 2.69 percent.
- Non-card revolving loan delinquencies fell from 1.61 percent to 1.57 percent.
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.
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.
The American Bankers Association is the voice of the nation’s $17 trillion banking industry, which is composed of small, regional and large banks that together employ more than 2 million people, safeguard $13 trillion in deposits and extend more than $9 trillion in loans.