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Auto Loans Paid Before Credit Cards, Mortgages

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In recent months, a number of studies have shown that consumers are prioritizing their credit card payments ahead of those on their home loans, but it seems that another type of credit is becoming even more important to borrowers.

These days, consumers are putting more effort into making sure their auto loan bills are paid on time if they can only afford one or two other types of payment every month, according to new data from the credit monitoring bureau TransUnion. In examining the credit payment histories of about 4 million consumers who had at least one auto loan, credit card and mortgage in their name during each quarter last year, it found that when finances got tight, the payment hierarchy started with car payments, then fell to credit card bills and, finally, home loans.

In all, just 9.5 percent of those studied fell behind on their auto loans while staying current with their credit cards and mortgages, the report said. Meanwhile, 17.3 percent of borrowers let their credit cards lapse while maintaining healthier habits related to their auto and home loans, and 39.1 percent fell behind on their mortgage payments while the other two types of accounts remained current.

“The reversal in payment patterns between credit cards and mortgages has been well documented, but our findings were illuminating because it had not been previously clear that auto loans were considered a higher priority by consumers than both credit cards and mortgages,” said Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit, adding that slower economic factors like unemployment and the depressed real estate market have largely contributed to these trends.

This preference was observed in all 50 states, as well as Washington, D.C., throughout last year, the report said. But at the same time, states with more depressed housing markets, such as Michigan and Florida, were more likely to make sure their car loan and credit card bills were paid on time. Meanwhile, places like Texas, where home prices have been stronger throughout the last year, were less likely to prioritize auto loans over anything else, though that was still the bill paid most often in general.

Consumers who fall behind on any of their bills will likely face a number of financial difficulties, including a lower credit score and perhaps penalty rates and fees that can make future payments difficult to afford.

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