Late Payments in Most Consumer Loan Categories Improve While Credit Card Delinquencies Rise
July 03 2006
The news about consumer loan delinquencies was mixed during the first quarter of 2006, according to the American Bankers Association's Consumer Credit Delinquency Bulletin. The bulletin is a quarterly survey of more than 300 banks nationwide reporting on the percentage of consumer loans that are 30 days or more past due.
"Overall the financial picture is good, which is reflected in improved delinquencies in most consumer loan categories," said James Chessen, ABA's chief economist. The composite ratio, which tracks late payments in eight types of closed-end installment loans, fell to 1.94 percent from 2.02 percent of accounts (seasonally adjusted) at the end of 2005.
But after a two-quarter drop, credit card late payments increased to 4.40 percent at the beginning of 2006, from 4.27 percent (seasonally adjusted) in the previous quarter.
"Credit card loan payments are sensitive to financial pressures. As gas prices eased at the end of 2005, so did credit card late payments," Chessen said. "But the favorable gas-price effect evaporated during the first quarter of 2006 and it's no wonder why. The Federal Reserve continues to raise interest rates and high energy prices are taking a bite out of disposable income."
Chessen noted that recent trends in consumer finances provide more insight into delinquency trends. "Not since the Great Depression has the national savings rate remained below zero for so long. Absent savings to cushion financial stress, some consumers end up missing a payment on their credit card loan," he said.
The first quarter composite ratio delinquencies are as follows:
Personal loan delinquencies dipped to 1.81 percent from 1.97 percent.
Direct auto loan delinquencies rose to 1.78 percent from 1.72 percent.
Indirect auto loan delinquencies fell to 2.04 percent from 2.13 percent.
Recreational vehicle loan delinquencies dropped to 0.78 percent from 0.90 percent
Marine loan delinquencies decreased to 0.94 percent from 1.01 percent.
Home equity loan delinquencies fell to 1.94 from 2.07 percent.
Property improvement loan delinquencies increased to 1.42 percent from 1.36 percent.
Mobile home loan delinquencies dropped to 3.37 percent from 3.91 percent.
Additionally, past-due payments on home equity lines of credit — the lowest delinquency rate category — increased to 0.55 percent from 0.51 percent, the fifth consecutive quarterly increase.
Consumers are advised to review their finances every year and watch for the warning signs of being overextended on credit:
Paying only the minimum payment month after month
Being out of cash constantly
Being late on important payments, such as rent or mortgage
Taking longer and longer to pay off balances
Borrowing from one lender to pay another
Actions / Tips for those having trouble paying down their debts and to solve debt problems :
Talk with creditors — hiding only makes the problem worse
Don't charge more purchases until your problems are solved
Avoid bankruptcy — it's a short-term solution with long-term consequences