Finance Globe

U.S. financial and economic topics from several finance writers.

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Loan Delinquencies on the Rise

The nation's economic troubles are taking its toll on consumers carrying too much debt - delinquencies are rising among many types of consumer credit accounts, as reported by the American Bankers Association (ABA) for the third quarter of 2008. Delinquencies are counted as accounts that are over thirty days past the payment due date.

The ABA tracks eight types of non-revolving, closed-end installment loans - home-equity line-of-credit (HELOC), property improvement loans, direct and indirect auto loans, loans for boats, RVs, mobile homes, and personal loans. The overall delinquency rate for accounts in these categories rose to 2.9% - the highest rate since 1980. First mortgages are not included in these numbers.

Some homeowners who cashed in on their home's equity to finance extravagant purchases are also having serious problems. The ABA says that HELOC delinquencies are at their highest rate ever at 1.15%.

Delinquencies have also hit a record level in the category of indirect auto loans - loans arranged by a third party like the auto dealer rather than directly through a bank - are also at a record level at 3.25%. The ABA says that 90% of all auto loans are indirect auto loans.

ABA Chief Economist James Chessen said the figures show a continued weakening of the U.S. economy. "The number one factor in rising consumer credit delinquencies is job losses. With one million jobs lost in the first three quarters and two and a half million expected for the year, delinquencies of all types of consumer loans will likely increase in the coming quarters," Chessen said.

While most types of loans experienced a higher rate of delinquencies, two types had lower delinquency rates. Direct auto loans - loans arranged directly through the bank - have a slightly lower delinquency rate, dipping from 1.77% to 1.71%.

The ABA reported that credit card delinquencies also fell, now down to 4.2% of all accounts.

"While some people are relying on credit cards to meet daily expenses like food and gas, many are being careful not to add new debt. Reducing debt and building up cash reserves are good strategies right now. If you're under financial stress, credit cards can be a bridge to meet daily expenses. And, unlike other loans with fixed payments, credit cards let you adjust monthly payment amounts. This flexibility is certainly helping people manage debt better during this difficult economic period," Chessen said.

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Thursday, 09 July 2020

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