Indebted households have reduced spending and saving ability for the years it takes them to pay off debt. Today Canadians owe a record $1.71 of debt for every $1.00 of disposable income. This suggests an extended period of lower consumption ahead, even if interest rates did not rise further from here.
On top of massive mortgages and lines of credit, Canadians are also servicing record auto debt stretched over the longest repayment periods in history. More than half of all new car loans are currently financed for 84 months (7 years) or longer, compared with an industry standard that used to be 60 months (5 years). J.D. Power numbers suggest that more than 30% of Canadians who trade in a car today have negative equity–owe more on the car than it’s worth. This will make it more difficult to afford repairs and replacement vehicles over the next few years. Creative financing allowed the car industry to bring forward future vehicle sales and book them in the present. It also detracted from future sales.
Canadians are buying more vehicles than ever. With most borrowing money in order to make this purchase, Jacqueline Hansen reports that longer and longer car loans are the new normal. Here is a direct video link.
;
