Car loans top consumers' payment lists
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NEW YORK -- Consumers juggling debt are making their car payments even if they're skipping mortgage or credit card payments, recent data show.
That's an important distinction for dealers and F&I managers who've said they want auto lenders to judge potential borrowers primarily on their history of car-loan payments instead of their entire credit history.
"The auto dealer just wants to sell the car," said Ezra Becker, vice president of research and consulting at U.S. credit bureau TransUnion, which collected the data. "The lender -- especially if it's a bank, as opposed to a captive -- only wants to make the loan if there's a reasonable probability it'll get paid back."
In an interview here last week, Becker said TransUnion's research bears out what dealers have been saying anecdotally about the hierarchy of payments: Consumers really are much more likely to put their car payment ahead of other obligations.
In 2011, of consumers struggling among mortgage, credit card and auto loan payments, 39 percent were delinquent on mortgage but current on credit cards and auto loan, 17 were delinquent on credit cards but current on mortgage and auto loan, and 10 percent were delinquent on auto loan but current on mortgage and credit cards.
The conventional wisdom among lenders has been that when consumers can't afford all of their monthly payments, they put the mortgage first, Becker said. Not any more.
The conventional wisdom, he said, evolved in an era when customers scrimped and saved for years to make a big down payment on a home, home values almost inevitably went up, and there was a much bigger stigma attached to being foreclosed on your mortgage. The housing bust and the last recession, he said, stood those conditions and that hierarchy of payments on their head.
"Where's your emotional investment when you made no down payment on a house? When the value goes down? When there's no stigma today about moving back in with your parents?" Becker said. "It turns out that people weren't in love with their homes, they were in love with their home equity."
 | Bill Underriner, 2012 NADA chairman, wants lenders to look at other factors besides a customer's credit score, which takes into account all payment history, not just car-payment history. |
In contrast, Becker said, consumers still need a car to get to work. Or they need a car to look for work. "The vast majority of people in the country need a car to be a functioning, independent adult," he said.
Bill Underriner, 2012 chairman of the National Automobile Dealers Association, has said he would like to see lenders look at other factors besides a customer's credit score, which takes into account all payment history, not just car-payment history.
"It's important that the lender looks at the people and not the credit score," Underriner said at an auto finance conference in February. "In many cases they're good people; they just hit a rock. They've never had this happen to them in their life. The lenders need to look at some other things, other than their credit score." Underriner is general manager of Underriner Motors, which sells Hyundais, Volvos and Buicks in Billings, Mont.
Becker said last week that rather than create a new custom credit score just for auto loans, lenders could change their cut-off points for different types of loans.
"The guy who qualifies at 640 for a car loan might need 680 for a mortgage, to use a made-up example," he said. "There have been some fundamental changes in consumer preferences."
You can reach Jim Henry at autonews@crain.com.
