Car Loans Now Easier to Get in Canada

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Car Loans Now Easier to Get in Canada

Car loans granted in the past eight years exceed $120 billion, and they have longer terms than before. But while automakers are happy to post record sales, the economy is still idling in Canada.

Canada has seen an increase in subprime loans, meaning higher-interest loans to people with a bad credit record or excessively large debt. The growing popularity of second- and third-chance credit at car dealerships has grown dramatically in the past few years.

Loans that drivers are taking out to buy new vehicles are growing much faster than inflation and gross domestic product, jumping 13 per cent in the fourth quarter of 2014 from a year earlier. The Bank of Canada raised a caution flag last December about auto debt generally, and fretted that the terms of loans might be growing too long.

Auto debt has grown as auto makers revel in what is the best of times for the Canadian market. Vehicle sales topped a 10-year-old record in 2013, broke that record last year and were 4 per cent higher than the 2014 pace through the first four months of this year.

Loans of six years or longer are helping to fuel those sales. They accounted for 66 per cent of auto loans in April, which was down from a recent peak of 69 per cent in August, 2014, according to data compiled by consulting firm J.D. Power and Associates.

Auto Source finance analyst Adam McKenzie is a firm believer that concerns about auto debt and long-term loans are overblown. If drivers plan to hang on to their vehicles for six, seven or eight years, there’s nothing wrong with financing them over those same periods, Mr. McKenzie said.

“What the vehicle companies worry about is longer amortizations lead to longer ownership cycles,” he said. “I think it’s the exact opposite. Because we have a longer ownership cycle, we have longer amortizations.”

He noted that leasing has bounced back from the low levels it hit during the recession to about 25 per cent of the market.

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