A cost comparison between new and used cars must include financing, depreciation, and maintenance.J.P. MOCZULSKI/The Globe and Mail
Despite warnings to curb their borrowing, an outlook released Thursday says Canadians will take on record levels of consumer debt next year, in part to buy cars.
The average Canadian's non-mortgage debt is slated to jump to a new high of $28,853 by the end of 2014, up more than a $1,000 from an estimated $27,743 in the fourth quarter of this year, according to a forecast from credit bureau TransUnion.
Thomas Higgins, the vice-president of analytics and decision services at TransUnion, said the expected 4 per cent increase in 2014 is much larger than the 1 per cent anticipated rise in 2013.
It would mean debt levels at the end of 2014 would be 29 per cent – or $6,500 – higher than they were at the same time in 2008.
Laurie Campbell, chief executive officer of Credit Canada Debt Solutions, said the 4 per cent forecasted jump in consumer debt is very concerning.
"Debt is enemy number one when it comes to your finances and we have forgotten that. People have become so used to having all this debt," she said.
"We have heard from almost every level of government, especially the Feds, that we need to lower debt and yet these warnings seem to be getting lost in translation."
The TransUnion figures, which exclude mortgage debt, are comprised of how much Canadians owe on their credit cards, instalment loans, lines of credit and car loans.
Car and truck sales in Canada have jumped in 2013 and the length of car loans has been getting longer, with many people stretching out the payments on their new wheels for six or eight years.
Cars will continue be a major contributor to consumer debt in 2014, Mr. Higgins said. "In recent years, the increase in auto sales has helped propel the total debt number and we believe auto captive loans will once again be a driver of this increase in 2014. Instalment loans also have played a major role and we don't expect there to be a material change in this trend."
Instalment loans are paid over a fixed period of time, for larger items such as big appliances, according to TransUnion. Auto captive loans consist of money borrowed strictly for auto purchases.
The impact of higher auto captive and instalment loans on overall Canadian debt can be seen in 2012. While average consumer debt has increased 5 per cent between the first quarter of 2012 and the third quarter of 2013, auto captive debt and instalment loans have seen the biggest increases of 9 per cent and 10 per cent, respectively, the TransUnion said.
"It's particularly important to note when you take into account that lines of credit, by far the most used credit product by Canadians, has remained flat during that same period," added Mr. Higgins.
Although consumer debt levels are expected to rise, the national delinquency rate is forecast to drop from 1.76 per cent at the end of this year to 1.66 per cent at the end of 2014, the TransUnion outlook said.
That suggests Canadians will still able to make their debt repayment obligations. Mr. Higgins did say there was a "slight concern" that delinquencies could rise alongside interest rates, but added that at this time, "we do not believe interest rates will rise enough to be materially impacted."
Leslie Preston, an economist with Toronto-Dominion Bank, said car sales in Canada have been very strong at the end of this year and it would not be surprising for that to carry on into next.
She doesn't see anything alarming about the TransUnion 2014 forecast. "This pace of credit growth is not inconsistent with what we see happening. So long as economic growth picks up modestly next year, I think Canadians will be able to handle this debt and support lower delinquency rates."
The overall levels of debt that Canadians are carrying "makes them more vulnerable should there be an unexpected shock in the economy," Ms. Preston added, at which point these debt levels would be a problem.