Delinquency Rate

A delinquency rate is the percentage of loans within a loan portfolio that have delinquent payments. A delinquency rate can be further broken down by categories. It is common for lenders to provide delinquency levels by both length of delinquency and delinquency by credit quality category.

Delinquency rates are an important factor that investors follow when analyzing and investing in loans of all types. Comprehensive statistics are also reported on delinquency levels of loans across the industry.

Lenders typically do not report a loan as in delinquency until the borrower has missed two consecutive payments. After two consecutive missed payments a borrower is reported to credit agencies as being 60 days late. If consecutive late payments continue then the borrower can be reported as 90 days delinquent, 120 days delinquent and so on up to 270 days. At 270 days any type of federal loan is considered in default under the Code of Federal Regulations. Individual loan agreements between borrowers and private sector lenders follow state codes in the U.S. which define the length of time until a loan is written off and considered in full default. (See also: What are the differences between delinquency and default?)

Borrowers can receive various delinquency rate marks on the individual trade lines included with their credit report. If consistent delinquency occurs with a loan the borrower will receive marks for 60 days late, 90 days late and so on. If a borrower makes repayment and then defaults again a new cycle is reported on the trade line as 60 days delinquent, 90 days delinquent, etc. Credit agencies and lenders take into account all delinquent marks that have been reported to a credit agency when determining a credit score and considering a borrower for credit approval. Lenders typically work with third party collection agents to begin making efforts to receive payments on delinquent debt.

The basic calculation for determining a delinquency rate simply divides the number of loans that are delinquent by the total number of loans an institution holds. For example, if a financial institution has a loan portfolio of 1,000 loans and 100 of those loans have delinquent payments of 60 days or more then the delinquency rate would be 10% (100/1,000).

Often, lenders will report total delinquency rates on loans by borrower credit quality. This can help investors gain a better understanding of the risks of loans by borrower type. Lenders may also breakdown delinquency by days delinquent providing the percentage of loans 60 days late, 90 days late, etc.

The Federal Reserve provides public data on delinquency rates quarterly across the U.S. financial market. As of the third quarter of 2017 the total delinquency rate from loans and leases at commercial banks was 2.27%. Residential real estate loans reported the highest delinquency rate at 3.62%. Credit cards reported the second highest delinquency rate at 2.53%.