Before I begin, a quick question. Let’s say you are struggling financially and do not have enough money to pay all of your bills this month. After taking care of your daily needs (food, electricity, water, etc.) you only have enough money left to pay one of the following bills – your mortgage, your credit card or your car loan. Which of these would you make a payment on?
Well, if you are like most Americans, you would pay your car note first. Yes, you read that correctly – your car loan would be your number one priority out of these three. TransUnion, a credit information company, recently conducted a study on the payment patterns of 4 million Americans with at least one car loan, one credit card and a mortgage and found that there was a priority for staying current on the car loan. Among Americans who were late on payments last year, 39% were delinquent on the mortgage while current on their car loan and credit cards. 17% were late on credit cards while current on the other two. In contrast, only 10% were late on the car loan while current on the other two.
In the past, Americans would pay their home loans first, then their credit card and finally their car loans. Before the recent housing market collapse, homes were a majority of people’s most valuable possession for decades and nobody wanted to jeopardize that and risk losing their house.
In fact, when TransUnion first did this study in 2006, staying current on the mortgage was the number one priority for Americans, says Ezra Becker, the company’s vice president of research and consulting. He feels the reason that the car payment has become so important is because many need a car to get to work or look for a job. It also has not helped that many are underwater on their homes and, despite this, their monthly mortgage remains the biggest payment for most.
Another reason for this change in thinking is because of the length one can remain in a house without paying his/her mortgage. With all of the short sales and foreclosures happening around us, many banks are far behind in processing these. Since this is the case, some foreclosures can take two to three years to become finalized. Contrast that to a missed car payment. An automobile can be repossessed 90 days after one misses his/her payment. In addition, missing a credit card payment does not cause immediate pain. Nothing will be shut off and you will not have to go without it if you don’t pay your credit card bill. Yes, you might feel this pain later on when interest is tacked onto your principle but, in the short-term, this pain is not felt. At the very least, you can usually work with your credit company and sometimes they will at least be willing to listen.
So what do you think – do these results surprise you? They did for me at first but, after thinking about it, I can understand why many feel their car loan is a priority.
About Danny Kofke