Managing Debt

Is There a Season for Delinquencies?

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Delinquency SeasonIt may seem hard to believe, but right around the same time every year, a lot of people become delinquent on their auto loan payments.

Using data from the Experian-Oliver Wyman Market Intelligence Reports and Experian’s IntelliView tool, we noticed a trend in auto loan delinquencies —  accounts 30-59 days delinquent have peaked in the fourth quarter and bottomed out in the first quarter of almost every year since 2006.

“We certainly see a seasonality to delinquencies,” says Melinda Zabritski, Experian’s Director of Automotive Credit. “They hit a peak in Q4 and three months later we see a big drop.”

To understand why consumers are so darn predictable, we turned to the car experts for some insight as to why auto loans often become delinquent toward the end of the calendar year and whether this trend occurs among other forms of financing, too.

Founder, President and CEO of CarFinance.com Jim Landy says that for the average American family, a lot of expenses are backloaded towards the end the year.

Free Credit Check & Monitoring“Starting around September, if you think about a family’s cash flow, there is a big demand on that cash flow right around back-to-school time,” he says. “It will tick up a little more for Thanksgiving, then it crescendos in the last couple weeks of December. Those expenses crowd out a lot of loan payments for autos.”

Zabritski says that holiday shopping could be a cause of the delinquency pattern, but also notes that it could have more to do with when car shoppers are actually buying their cars, which Experian tracks by examining auto loan originations.

“When we look at where we see purchase behavior, we actually see a little bit of a different behavior in originations. Unlike delinquencies, they tend to be up in the beginning of the year, and drop towards the end,” she says. “Most people, when they get an auto loan, don’t go delinquent immediately. You won’t necessarily see a delinquency directly follow a vehicle purchase.”

So, does this cyclical nature of auto loan delinquencies also spread to home loans and credit cards? Not exactly.

The Experian data doesn’t exhibit the same year-over year patterns for mortgages and bank cards that we see with car loans. However, there has been a lot of volatility in both of these credit areas during the past five years due to the Great Recession and its aftermath.

Even though delinquency rates have been consistently on the decline for auto loans during the past three years, Landy says he has seen a distinct change in the consumer psyche and why the decline in auto loan delinquencies may not be permanent.

“In the event of a consumer getting into difficulty making their payments, they used to try to hold onto their car,” he says. “We’re seeing a lot more consumers voluntarily allow a repossession.”

Regardless of the trends, those interested in buying a car should plan ahead and budget to ensure they can make car payments on time, every month of the year, not just in the few months right after getting your wheels.

Image: Hemera

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