Closed-End Loan Delinquencies Fall in the Fourth Quarter of 2018

The American Bankers Association (ABA) released new data yesterday covering loan delinquencies. Most closed-end loans saw a fall in delinquencies in the fourth quarter of 2018 while most open-ended loans saw a small increase. Overall, “delinquencies fell in six of the 11 categories tracked by ABA while five categories rose.”

ABA’s composite ratio, which tracks the delinquency rates in eight closed-end loan products, fell from 1.87 percent to 1.78 percent in the fourth quarter of 2018. Despite the drop in the installment loan delinquency rate over the last quarter, the annual delinquency rate has been gradually increasing since 2015. Still, the rates are much lower than they were in the years preceding the 2008 Financial Crisis.

“Delinquencies remain low by historical standards, reflecting continued prudent use by card holders who have kept their balances remarkably low relative to their disposable incomes,” said James Chessen, ABA’s chief economist. “A key factor has been the Fed, which has raised rates seven times over the last two years. This has increased the cost of credit, which translates into fewer loans and somewhat higher delinquencies.”

The specific loan categories tracked by ABA are below:

Closed-End Loans

• Direct auto loan delinquencies fell from 1.16 percent to 1.08 percent.
• Home equity loan delinquencies fell from 2.53 percent to 2.52 percent.
• Mobile home delinquencies fell from 4.39 percent to 3.84 percent.
• Personal loan delinquencies fell from 1.45 percent to 1.26 percent.
• Property improvement loan delinquencies fell from 1.14 percent to 1.12 percent.
• Indirect auto loan delinquencies rose from 1.99 percent to 2.08 percent.
• Marine loan delinquencies rose from 0.70 percent to 0.72 percent.
• RV loan delinquencies rose from 0.75 percent to 0.77 percent.

Open-End Loans

• Home equity lines of credit delinquencies fell from 1.14 percent to 1.09 percent.
• Bank card delinquencies rose from 3.05 percent to 3.22 percent.
• Non-card revolving loan delinquencies rose from 1.60 percent to 1.70 percent.

For borrowers who have outstanding loan balances, ABA recommends (1) contacting a consumer credit counseling service and (2) speaking with the original lender or creditor.

NAFSA agrees with these recommendations and also offers a free Financial Literacy Program that provides financial literacy modules and tools with easy-to-understand information to help people better understand their finances and make more informed decisions. This cost-free program can be accessed here.