With Canadians splurging on real estate and new cars, vehicle sales have skyrocketed. As per a recent release by Statistics Canada, new car sales in February reached a record high. Excellent news for automobile manufacturers, yet an alarming sign for the economy as these purchases are often financed by debt. This trend could be more of a warning signal than a cause for celebration.
New Vehicle Sales in Canada Hit Record Highs
New motor vehicle sales across Canada have soared to an all-time high, with 125,284 units sold—a 2.74% increase from the same period last year. Ontario dominated these sales, accounting for 41% of total vehicle purchases, a rise from 39% in 2016. With booming real estate prices and remarkable auto sales figures, Ontario’s economy better be in the best shape ever, or it might face difficulties.
Consumers are also opting for more expensive vehicles. Over $5 billion was spent on new vehicles in February alone, raising the average expenditure to $40,100—a 3.4% increase from last year. Interestingly, the average cost in Ontario, which came in at $39,400, was below the national average. Although these prices are lower, they’re far from being considered budget vehicles.
The surge in the average sale price can be attributed to longer financing terms for buyers. According to the Financial Consumer Agency of Canada (FCAC), Canadians are “increasingly buying more car than they can afford,” due to the popularity of extended financing. The agency highlighted that average leases have increased by two months annually since 2010. As per the Bank of Canada (BoC), the average loan term was 74 months as of 2015. Although longer terms reduce monthly payments, they increase the total cost of the loan.
Rise of Non-Prime Lending in the Auto Industry
It appears that all Canadians, including those in the auto sector, are embracing the right to debt. The BoC estimates that 25% of borrowers are non-prime, which, in Canadian English, translates to “sub-prime.” These borrowers typically have a credit score below 670 and face predatory loans with interest rates as high as 25%. This situation makes it challenging to build positive equity on car loans, particularly for newcomers, bankrupts, those with bad credit, new credit, and recent grads.
Regardless of your credit status, if you’re in need of a car loan, consider applying through us. We strive to provide loan solutions that work for a range of financial situations.
*Toronto Car Loans is not responsible for the accuracy of this information, and this information is for educational purposes only*
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