An escalating affordability crisis is pushing a growing number of Canadian vehicle owners to miss their car payments, with the youngest and oldest borrowers facing the steepest challenges. New data reveals a significant nationwide uptick in auto loan delinquencies, underscoring the severe financial pressure from high vehicle prices, extended loan terms, and broader cost-of-living increases.
Delinquency Rates Climb Across Age Groups
According to the latest report from Equifax Canada, the overall percentage of borrowers who missed three or more payments on their auto loans reached 1.88% in the third quarter. This marks a substantial 10.77% increase compared to the same period last year.
The strain is not evenly distributed. The most dramatic rises are seen at the extremes of the age spectrum. For borrowers aged 25 or younger, the delinquency rate jumped to 2.94%, a 9.24% year-over-year increase. Meanwhile, the situation for seniors is deteriorating even faster. Among those 65 and over, the rate hit 1.03%, representing a staggering 16.02% surge from last year.
"You end up in a situation where affordability for vehicles has been a major, major challenge," said Rebecca Oakes, vice-president of advanced analytics at Equifax Canada.
The Roots of the Crisis: Pandemic Hangover and Rising Rates
The current wave of defaults stems from a confluence of factors that have reshaped the auto market. The COVID-19 pandemic triggered severe supply chain disruptions and a global chip shortage, drastically limiting the production of new vehicles. This scarcity, in turn, drove prices skyward for both new and used cars.
Just as these supply issues began to resolve, the Bank of Canada embarked on a rapid series of interest rate hikes, elevating the overnight rate from a historic low of 0.25% to 5% by 2022. Although the rate has since been lowered to 2.25%, borrowing costs for consumers remain elevated. Oakes noted that average interest rates on auto loans have not fallen as quickly as the central bank's policy rate.
Faced with record-high sticker prices, consumers have been forced to stretch their loans to unprecedented lengths to make monthly payments manageable. It is now common to see loan terms of seven or even eight years, particularly on used vehicles that may not remain reliable for the duration of the financing period.
Broader Impacts and a Challenging Road Ahead
The fallout from this affordability squeeze extends beyond individual budgets. Lenders and automakers are also feeling the pinch. The total balance of delinquent loans—those with three or more missed payments—represented 1.03% of all auto loan balances in Q3, a 4.87% increase year-over-year. For loans held by the youngest borrowers (25 and under), the delinquent balance soared by 23.75%.
Compounding the problem are rising insurance premiums, which add another layer of cost to vehicle ownership. When combined with persistent inflation and high housing expenses, the financial burden for many households has become unsustainable.
Price trends offer a mixed picture. Data from AutoTrader.ca indicates the average price of a new vehicle in Canada during the third quarter was $63,264, a 4.9% decrease from the previous year. However, the market for used cars remains hot, with average prices rising 3.2% year-over-year to $36,911.
"Obviously, the affordability is still a real challenge," Oakes concluded, signaling that relief for Canadian drivers may not arrive soon. The data paints a clear portrait of a market still reeling from recent shocks, with consumers bearing the brunt of the financial strain.
