Personal debt levels manageable

Michael Hatch, CADA

From the CADA,
Special to Wheelstalk.com -

Ottawa, November 15, 2012 Today, Michael Hatch, the Chief Economist for the Canadian Automobile Dealers Association (CADA) commented on the media attention that has brought focus to the issue of increasing personal debt levels in Canada.

“The media has seized upon the increasing levels of personal debt as a ratio of income in Canada in recent months,” said Hatch, “and seems to have concluded that this is unambiguously bad news for the economy. Usually missing in the treatment of the issue is the fact that despite higher-than-average debt to income ratios, default rates are lower than ever for all forms of personal debt, particularly auto loans.”

While most forms of personal debt, such as lines of credit and credit cards, have flattened in 2012, automotive finance products continue to increase. New vehicle sales have increased seven per cent this year thanks to prices that are lower than they have been in two decades, and the reality remains that the vast majority of Canadian consumers need to finance at least a portion of the purchase of a new car.

“When money is lent to a consumer, the most important consideration for the creditor is the customer’s ability to repay that loan on time. In the second quarter of this year, the default rate on auto loans was 0.08 per cent, meaning only one in 1,250 consumers have been unable to fulfill their automotive debt obligations. This is an incredibly low number, and is indicative of the fact that today’s levels of consumer debt are entirely manageable.”

Consumer debt cannot continue to increase forever. Too often lost in the conversation is the fact that delinquency rates on all types of consumer debt have been on the decrease even as overall debt levels have grown.

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