Table of Contents
- What Is a Delinquency Rate?
- How Delinquency Rates Work
- Tracking Delinquency Rates
- Reporting Delinquency Rates
- Calculating Delinquency Rates
- Special Considerations: Publicly Reported Delinquency Rates
- What Kinds of Loans Have the Highest Delinquency Rates?
- What Kinds of Bank Loans Have the Highest Delinquency Rates?
- Can Having Delinquencies Prevent You From Getting a Loan?
What Is a Delinquency Rate?
Let me explain what a delinquency rate is—it's the percentage of loans in a financial institution's portfolio that have overdue payments, and I usually see it reported after a borrower misses two consecutive payments.
When you're analyzing or investing in loans, you need to keep an eye on the delinquency rate as a key metric; it's straightforward to find detailed statistics on delinquencies for all kinds of loans.
How Delinquency Rates Work
I'll break down how delinquency rates function, starting with tracking them.
Tracking Delinquency Rates
Typically, a lender won't report your loan as delinquent until you've missed two consecutive payments, at which point they'll notify the credit bureaus that you're 60 days late.
If you keep missing payments, the lender will continue reporting each month for up to 270 days. After that, federal regulations consider federal loans in default, while private loans follow state rules for default status. Lenders then often involve third-party collection agents to recover the payments.
Reporting Delinquency Rates
Credit bureaus mark your credit report with delinquency notations on individual tradelines, like 60 days late, 90 days late, and so on if you're consistently behind.
If you catch up but then default again, a new delinquency cycle shows up. When lenders or agencies review you for credit, they look at all these marks. For corporate debt, lenders often report delinquency rates based on borrower credit quality to give investors risk insights.
Calculating Delinquency Rates
To calculate the delinquency rate, you divide the number of delinquent loans by the total number of loans in the portfolio. For instance, if a bank has 1,000 loans and 100 are 60 days or more delinquent, the rate is 10%—that's 100 divided by 1,000.
Special Considerations: Publicly Reported Delinquency Rates
The Federal Reserve System releases quarterly data on delinquency rates across the U.S. financial market. As of Q1 2022, the overall rate for loans and leases at commercial banks was 1.40%, with residential real estate loans at the highest of 2.13% and consumer credit cards at 1.73%.
What Kinds of Loans Have the Highest Delinquency Rates?
Student loans top the list with a 12% delinquency rate from May 2021 to May 2022, according to the Federal Reserve, though that's down from 17% in fall 2019 before the pandemic. The drop came from payment relief in the CARES Act and executive orders during COVID-19.
What Kinds of Bank Loans Have the Highest Delinquency Rates?
Based on Federal Reserve data for 2022, residential real estate loans have the highest rate at 2.13%, followed by consumer credit cards at 1.73%, then miscellaneous consumer loans, farmland real estate, consumer agricultural loans, consumer C&I loans, consumer leases, and commercial real estate at the lowest of 0.78%.
Can Having Delinquencies Prevent You From Getting a Loan?
Yes, delinquencies on your credit report can stop you from getting a new loan, especially if there are multiple cycles of them.
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