Canadian Borrowers Seeing More Loan Debt While U.S. Sees Subprime Loans Rise

Tim Healey
by Tim Healey
canadian borrowers seeing more loan debt while u s sees subprime loans rise

Car buyers who borrowed money to finance their purchase are seeing higher loan debt per borrower rates, along with higher delinquency rates. And it’s happening on both sides of the border.

Let’s start with Canada. Automotive News picked up a report from TransUnion showing that average auto-loan debt per borrower has gone up in the second quarter, and so too have delinquency rates. This is happening as vehicle prices have also risen during the same time period. Consumers are also rolling in other debt and parts of the country are still in recovery mode from the recent economic crisis.

To be precise, the report says the average balance per borrower on car loans is $20,477, an increase of 2.4 percent over last year. A Canadian TransUnion analyst told AN that rising vehicle prices and the rolling over of negative equity were key reasons.

60-day delinquency rates rose slightly, as did 90-day rates. TransUnion Canada blames the decline in the oil industry in parts of the country as a cause of the problem. Alberta and Saskatchewan are especially struggling.

There was also a shift in loan originations away from subprime towards prime, prime-plus, and superprime categories. It’s unclear if this is because lenders are exercising more caution, or if subprime borrowers are spending their income on other items due to economic struggles.

This follows reports from earlier this summer of a booming market for subprime auto loans in the United States. A Bloomberg piece from July includes a chart showing 90-day delinquencies jumping to almost 4 percent in the first quarter, which appears to be a post-financial-crisis high. The article then delves deep into the regulatory scrutiny that lender Santander has been under.

There was a rise in lending for new cars last year, and now we’re seeing a rise in average new vehicle transaction prices (in Canada and the U.S.) and laxer lending standards from Wall St. when it comes to subprime auto loans. Subprime auto loans may be less risky in terms of economic crisis than subprime mortgages, but that doesn’t mean these numbers aren’t worth keeping an eye on.

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  • Mikey Mikey on Aug 24, 2017

    A huge potion of the Canadian population live in The Greater Toronto Area. G.T.A housing prices jumped 40 percent in the space of a year..Thousands of home owners became "paper" millionaires over night. The attitude was on of "Hey I'm a millionaire I can afford a $70 K BMW" In April the provincial government slapped a 15 percent tax on foreign ownership. Around the same time the banks started to get antsy, and tightened the screws on the money. Within 60 days prices dropped 25-30 percent, and are still dropping. People that had committed to an unconditional offer found themselves trying to close a deal on a property worth $80 K less than it was when they bought..Thousands of house deals went sour. The Lawyers, and the courts ,will be years straightening everything out. Meanwhile the guy with the $70 K BMW owes more on his house than what its worth. Household debt in Canada was, and still is, obscene. As my mother would say "The chickens have come home to roost"

    • See 5 previous
    • Ect Ect on Aug 28, 2017

      mikey, I don't pretend to know the market in Oshawa, but in Toronto itself things are not as you describe. Prices did indeed plateau in late May-June, and lenders have become fussier, but there have not been dramatic reductions - only the usual summer doldrums. We'll see what hapens as the market reawakens after Labour Day. The fundamentals, though, have not changed. The GTA sytill attracts net inbound migration of about 100,000 people/year, which creates demand for 70,000 new housing units every year. People have jobs, and interest rates are low. The foreign buyer tax is a solution looking for a problem. And mortgage delinquency rates (according to TransUnion) are steadily falling, running at 0.54% in June 2017. So, it looks like the frenzy has died down, and maybe we'll return to a more "traditional" market, where the long-term appreciation rate tends to run in the range 0f 6-8% per annnum. As the Zen master famously said, "we'll see".

  • Mikey Mikey on Aug 24, 2017

    I don't have a car payment ...My 407 and 412 charges are bad enough : (

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