Cars and Increasing Debt

The average Canadian non-mortgage debt reached $26,211 this year, the highest level since 2004 and 2.4% higher than a year ago. A large portion of this increase was an increase in car loan debt, which is up 13.2% over a year ago. Credit card debt and lines of credit remained virtually unchanged.

Canadians are continuing to take on debt faster than incomes are growing. Disposable income grew at an annual rate of 2.3% in May but households are taking on debts at a rate of increase of 5.7%.

Household debt is at a record high of 150% of GDP, which is higher than in the USA.  People are thinking that low interest rates will continue to be with us for a while and therefore they are getting more into debt.

The Bank of Canada has done some studies and estimates that “highly indebted” households (those that spend 40% or more of income on servicing debt) could rise to 10% in 2016 from 6% in 2011 if interest rates reach 4.25%.

In addition to the cost of buying a car, there is the maintenance, insurance and ever increasing gas cost. A 2006 study estimated the average vehicle costs $8,003 per year to own and operate – $3,421 for purchasing costs, $2,227 for gas and oil and $2,355 in other vehicle-related costs. Other studies have estimated that the gas, maintenance, license, registration, loan finance and depreciation for a small sedan model is $.50 per mile if you average 10,000 miles, $.41 if 15,000 miles and $.37 if 20,000 miles. This does not include parking costs.

Consider reducing your costs of this expensive asset by; taking more public transportation, car pooling, alternate driving with friends, drive as small and fuel efficient 4 cylinder car as possible, ride a bike or walk more for errands and consolidate your trips.