Canadians have some of the highest household debt levels in the world, thanks to cheap mortgages and home equity credit lines. And car loans are next.
Canadian household debt levels are estimated at 152 percent of income, and long-term loans with cheap interest rates (or 0 percent interest) are cropping up all over the place. A look to Canadian manufacturer websites shows that most of the big players are offering some kind of 0 percent. A J.D Power survey cited by The Globe and Mail claims that more than half of Canadians financing a new car are taking out loans with terms longer than 6 years. That figure was around 14 percent just five years ago.
Typically, a 7 year term can be had interest-free, which makes it attractive for families or individuals burdened with exorbitant housing costs. While consumers are stuck with a long loan term (often well past a car’s warranty period) the lower monthly payments are an attractive proposition. The collapse of leasing, which accounted for 40 percent of purchases before the recession (compared to just 17 percent over the past year), is also cited as a cause for the increase in financing.
Of course, this is all normal, and real estate in major cities will continue on its unstoppable rise upward and there will never be a shortage of foreign investors looking to park their money in Canada. Ever. Which means interest rates will always stay low and nobody will ever have to worry about living beyond our means.