Canadians are increasingly taking on debt as the country’s high cost of living persists, leading to more missed loan and credit card payments.
Consumer debt in Canada hit a record high in the third quarter of this year, up 4.1% compared to 2023.
Consumer debt hit $2.5 trillion in the third quarter of this year, according to TransUnion’s Q3 2024 Credit Industry Insights report published on Tuesday.
Serious delinquencies, meaning an account with a missed payment of 90 days or more were also up nearly 2%, compared to Q3 2023.
“Consumers are just not able to keep current on all their payments in all their cases so we are seeing delinquencies creep up a bit,” said Matt Fabian, researcher and consultant with TransUnion.
The credit agency said that inflation, high housing costs and the price of groceries have placed a great deal of strain on Canadians’ ability to pay their bills, particularly Millennial and Gen Z consumers.
“The cost of living is higher and interest rates are higher, so I think that creates a payment shock for a lot of Canadians who all of a sudden things are less affordable and the cost of covering your debt becomes a little more expensive,” added Fabian.
A report from global data firm Equifax noted that while interest rate cuts are providing some relief to consumers, newcomers to Canada and consumers who are new to credit are struggling the most in keeping up with their payments.
“Recent newcomers to Canada are facing challenges in navigating the Canadian financial economy. Historically newcomers have demonstrated strong credit performance in the first few years of being in the country,” said Equifax Canada’s vice president of advanced analytics Rebecca Oakes.
“However, rising unemployment levels combined with high inflation in the last few years has likely added significant financial pressure to this group.”
Third-quarter missed credit card payments were up 10.6% compared to last year, with 1.3 million consumers falling into debt.
“Newcomers who opened credit files in late 2021 and early 2022 during peak immigration levels, are now showing increased signs of financial strain as they struggle to make credit payments amid high inflation and increasing unemployment rates,” reads the report.
Within that cohort, 1 in 28 consumers missed a credit payment in the third quarter in 2023, that figure has now grown to 1 in 22 this year.
Equifax found auto loans as being among the biggest drivers of rising consumer debt in Q3 2024, with non-bank auto loan debt increasing by 12% year-over-year.
Bank auto loans also increased by 2.7% year-over-year, with auto lending showing strong growth this third quarter.
Additionally, non-bank auto loan originations jumped up by 13.6% in 2024, compared to last year.
“We are finally starting to see small affordability improvements for consumers to purchase and finance vehicles,” said Oakes.
“Reductions in used car prices along with better rate deals for new cars are helping to drive an increased demand for auto loans.”
Both TransUnion and Equifax noted the importance for consumers not to miss any of their payments as we approach the holiday spending season.
The credit reporting agencies warned that doing so will ultimately lead to higher borrowing costs.
“If you do go out and apply for additional credit elsewhere, you may find it’s hard to get access to credit. You may find you don’t get the best rates, and the missed payments may impact your credit score,” said Oakes.
