Total consumer debt has increased to $1.864 trillion in Q2 — up 5.4 per cent from a year ago, according to an Equifax Canada Q2 2018 National Consumer Credit Trends Report.
This rising debt has generated concerns that delinquency rates will also begin to rise in the coming months, due to higher interest rates, slower economic growth and a dampening effect on new mortgage volume, according to an Equifax news release. This issue also has the potential to greatly affect a consumer’s ability to purchase a new vehicle.
“There’s a trifecta of factors in play,” said Bill Johnston, Vice President of Data & Analytics at Equifax Canada. “Consumers will have tighter cash flows as interest rates climb further, which can lead to people not paying off their credit cards in full each month. After a period of sustained economic growth, we’re moving back to a slow and steady pace. And finally, new mortgage volume has been negative over the last three quarters. Add these together and we should begin to see upward movement in delinquencies.”
Average non-mortgage debt has climbed 3 per cent or $23,271 per person. Installment loan, mortgage, and auto loan sectors jumped 10.8 per cent, 5.4 per cent and 6.7 per cent year-over-year, respectively.
“There are certainly signs that new credit demand is slowing,” said Johnston. “A hot car market and home renovations are driving installment loans. And, at this point, a slow down or less reliance on lines of credit is a positive step as the market moves through a rising rate phase.”
He adds that lines of credit still represent the biggest share of consumer debt. As lines of credit are typically offered with variable rates, Johnston says “this will be the first point of impact for higher interest rates.”
This in turn can directly impact a consumer’s interest in purchasing or leasing a new vehicle in Canada.
