In times of crisis, repayment prioritization of credit products
often provides a clearer view of how consumers are meeting the
financial burdens they face. A new TransUnion (NYSE: TRU) Global
Payment Hierarchy study found that the COVID-19 pandemic had a
pronounced effect – in a short period of time – on how people paid
their debts, particularly when faced with financial stress. In the
United States, the changes were prominent across multiple credit
products, with consumers clearly prioritizing their mortgage loan
payments over auto loans and credit cards.
“TransUnion has tracked payment hierarchy dynamics for more than
a decade, including how these patterns changed in the U.S.
following the Great Recession and in many other countries when they
have encountered localized financial challenges,” said Charlie
Wise, head of global research and consulting at TransUnion. “This
study is unique in that it highlights how and why payment dynamics
changed in different countries as a result of the COVID-19 pandemic
– a global crisis that has impacted consumers worldwide. These
insights will better equip both financial institutions and
consumers, fostering more trustworthy interactions between them as
the world begins to normalize and recover from the pandemic.”
Credit Cards v. Personal Loans – What is the World
Prioritizing?
TransUnion analyzed and compared trends for wallet profiles that
are popular across the countries studied, including the United
States, Canada, Colombia, India and South Africa. The study
observed within each country those consumers with one or more
credit cards and at least one personal loan, to identify if any
changes took place in the payment hierarchy. To determine which
credit product was prioritized over the other, TransUnion observed
payment performance of the credit products over a 12-month time
period, including whether or not one of the credit cards or
personal loans went at least 30 days delinquent.
In the U.S., the study observed that personal loans were
prioritized when consumers possessed multiple credit cards, though
the gap between delinquency rates—indicating the degree of
preference—narrowed during the pandemic. Similar trends were seen
in Canada and India, which suggests that credit cards took on
increased importance during the pandemic and that consumers were
more focused on keeping their cards in good standing by making
timely payments.
A flip in the payment hierarchy happened during the pandemic in
South Africa as credit cards were prioritized over personal loans,
reversing the pre-pandemic hierarchy in favor of personal loans.
Colombian credit usage showed no clear prioritization of either
product until March 2020, when more value was placed on personal
loans.
An interesting dynamic occurred in the U.S. and other countries
wherein the payment hierarchy flipped for those consumers
possessing only one credit card and at least one personal loan. In
those cases, credit cards were prioritized during the pandemic, in
contrast to the pre-pandemic preference for personal loans. In the
U.S., this particular group comprised approximately 20% of the
overall study population. This shift further demonstrates the
increased importance of credit cards for consumers during the
pandemic and the need to maintain access to this valuable source of
credit. For those consumers with at least one credit card and at
least one personal loan, on average, U.S. consumers possess three
credit cards and one personal loan.
Personal Loans Mostly Prioritized Over
Credit Cards…
Credit Product 30+ DPD Rate* |
United States |
Canada |
Colombia |
India |
South Africa |
Q3 2020 |
Credit Cards |
1.78% |
0.86% |
5.26% |
6.51% |
13.62% |
Personal Loans |
1.11% |
0.51% |
4.62% |
5.46% |
15.30% |
Q3 2019 |
Credit Cards |
2.94% |
1.41% |
3.35% |
5.03% |
14.03% |
Personal Loans |
1.49% |
0.51% |
3.57% |
3.01% |
12.90% |
*30 or more day delinquency rate at 12 months for consumers who
possess at least one credit card and personal loan.
…But Dynamic Shifts if Consumers Only
Possess One Credit Card
Credit Product 30+ DPD Rate** |
United States |
Canada |
Colombia |
India |
South Africa |
Q3 2020 |
Credit Card |
1.48% |
1.11% |
3.30% |
4.68% |
11.81% |
Personal Loans |
1.66% |
0.79% |
5.86% |
5.76% |
16.81% |
Q3 2019 |
Credit Card |
2.62% |
1.89% |
2.63% |
4.19% |
12.18% |
Personal Loans |
2.36% |
0.78% |
5.11% |
3.32% |
14.48% |
**30 or more day delinquency rate at 12 months for consumers who
possess one credit card and personal loan.
“Cash was clearly not king during the early parts of the
pandemic. Millions of people opted to use their credit cards to
make digital transactions from the safety of their home for
groceries, clothes or other everyday items,” said Matt Komos,
TransUnion’s head of research and consulting in the U.S. “If you
only have one credit card and you were worried about visiting
stores at the height of the pandemic, there’s a strong likelihood
you will preserve that card to continue spending and making digital
transactions. If you possess three cards, though, it’s far more
likely that you will go delinquent on one of them before you do so
with a personal loan if you are facing financial hardship, as many
consumers can continue to get by as long as they have access to at
least one card.”
These findings were corroborated by a global survey of 2,667
consumers who possessed credit products in Brazil, Canada,
Colombia, Hong Kong, India, South Africa, the United Kingdom and
the United States. Consumers across the globe recognized that there
will be consequences if they miss at least one payment of any of
their credit products. For instance, more than half (53%) of global
respondents with a credit card said they expected to receive a call
from their lender if they missed one payment.
The negative implication of a missed payment to a credit score
was understood most by credit card and personal loan holders.
Approximately 68% of credit card holders and 65% of consumers with
personal loans said a consequence of a missed payment would result
in a lower credit score. Comparatively, consumers with auto loans
(55%) and mortgages (57%) were not as aware of this
consequence.
Deeper Dive Into U.S. Payment Hierarchy Dynamics Shows
Mortgage is Priority #1
In the U.S., TransUnion also conducted a payment hierarchy study
focusing on the three most popular credit products in the country –
auto loans, credit cards and mortgages. Approximately 27.8 million
consumers held all three loans as of Q3 2020, and mortgages were
clearly prioritized over the other credit products. This dynamic
has held true since Q4 2017.
The pandemic, though, has caused even greater prioritization of
mortgages over the other credit products. For those consumers
possessing auto loans, credit cards, and mortgages, the 30+ days
past due delinquency rate at 12 months following observation was
lowest for mortgages, at 0.75%, as of Q3 2020. Auto loans had the
second lowest delinquency rate at 1.13%, followed by credit cards
at 1.95%. This is very likely connected to the growth in home
prices over the last several years as housing markets across the
country have remained strong, and consumers’ desire to protect the
equity in their homes. As well, as lockdowns and the shift to
work/school from home permeated during the pandemic, keeping
current on home loan payments took on increased importance in
2020.
Consumers Prioritizing Mortgages Above
All Other Major Credit Products
Credit Product 30+ DPD Rate** - Timeframe |
Q3 2020 |
Q3 2019 |
Q3 2018 |
Q3 2017 |
Q3 2016 |
Auto Loans |
1.13% |
1.42% |
1.37% |
1.37% |
1.23% |
Credit Cards |
1.95% |
2.62% |
2.40% |
2.41% |
2.12% |
Mortgage Loans |
0.75% |
1.28% |
1.29% |
1.40% |
1.34% |
**30+ days past due rate at 12 months for those borrowers
possessing all three credit products.
“Mortgage is once again the clear priority for U.S. borrowers,”
said Komos. “The mantra, ‘you can’t drive your home to work’
doesn’t have the same effect when millions of Americans are waking
up, showering, eating breakfast and taking only a few steps to
their home office.”
In addition to more people working from home and rising home
values, mortgage loan performance is likely benefitting from
thousands of mortgage borrowers entering accommodation programs
soon after the onset of the pandemic. The study points to both
subprime and near prime credit risk mortgage borrowers benefitting
the most from these programs as they were able to delay payments
and maintain their accounts.
Similar to the global study comparing credit card and personal
loan performance, prioritization of payments shifted if a consumer
possessed only one card. Of the 27.8 million U.S. consumers in the
study possessing an auto loan, credit card and mortgage, only 5.3
million people had one credit card in their wallet. For this subset
of the population, mortgage remains the clear priority, but
consumers with only one credit card valued it more than their auto
loan beginning in Q2 2020. This shift suggests the heightened
importance of maintaining access to at least one credit card as
online commerce and digital transactions have become a daily
necessity for many U.S. households.
Survey data highlight that U.S. consumers valued their mortgages
over other loans because the credit product has the highest
perceived value of all expenses. Furthermore, six in 10 U.S.
consumers expected to receive a call from their lender if they
missed one mortgage payment and more than half (52%) said their
missed payment would have a negative impact to their credit score.
Nearly one in five consumers (17%) said they would experience
foreclosure or their home would be repossessed if they miss a
mortgage payment.
“The pandemic has changed so much in the world, but
understanding why consumers are making important credit decisions
only serves to better help the lending ecosystem in the future,”
concluded Komos.
To learn more about consumer payment prioritization shifts
during the pandemic, register for TransUnion’s April 22 webinar
here. For more information about TransUnion’s Global Payment
Hierarchy Report, please click here.
About TransUnion (NYSE: TRU)TransUnion is a
global information and insights company that makes trust possible
in the modern economy. We do this by providing a comprehensive
picture of each person so they can be reliably and safely
represented in the marketplace. As a result, businesses and
consumers can transact with confidence and achieve great things. We
call this Information for Good.®
A leading presence in more than 30 countries across five
continents, TransUnion provides solutions that help create economic
opportunity, great experiences and personal empowerment for
hundreds of millions of people.
http://www.transunion.com/business
Contact |
Dave BlumbergTransUnion |
E-mail |
dblumberg@transunion.com |
Telephone |
312-972-6646 |
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