The days of free money and easy credit are over. And, for many in North America, this means soaring loan servicing costs. But, for Americans who often equate owning a car with freedom, they can’t help themselves. And, now, more than 100 million Americans own a car – but, along with that ‘ownership’ comes $1.5 trillion in auto loan debt – a record high.
What’s more, Americans falling into auto loan delinquency is soaring. According to CNBC,
“In 2022, $20 billion in Gen Z and Millenial debt had fallen into serious delinquencies.”
Auto Loan Debt is Soaring in the U.S. and Canada
Buying a car is the second largest purchase for most people. As interest rates have risen, the average monthly payment for a new vehicle sits at $725 in 2023 vs. $650 in 2022. Used vehicle payments saw only a 2% increase, from $505 to $516 monthly. The Fed’s interest rate hikes are pricing many out of the market.
According to BBC News Nadine Yousif, in a May 2023 article titled Canada’s household debt is now highest in the G7,
“As of 2021, Canada’s household debt is 7% higher than the country’s entire GDP. This is an increase from 2010, when household debt was about 5% lower than Canada’s GDP.
By comparison, household debt in the US fell from 100% of the country’s GDP in 2008 to about 75%…”
Canadians, Like Americans are Drowning in Debt
Despite higher interest rates, Canadians are borrowing like never before. According to Household debt level rises as interest rates bite into cash flow, by the Canadian Press,
“Canadians’ combined outstanding debt hit a new record in the first quarter of the year, reaching $2.32 trillion, TransUnion reported two weeks ago. Average balances on most consumer credit products rose by 11.4 per cent, while average mortgage balances were up 7.1 per cent.”
Debt servicing costs are crushing the middle class and those least able to afford it. While car loans are an easy example to point to, mortgage and credit card debt make up trillions of debt, and many consumers are struggling to repay. When one adds the inflation factor, it is surprising to think we have avoided recession so far.