Defaults on car loans and credit cards debt reaches high

21 January 2014 - Which Way To Pay

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Consumers continue to rack up debt on auto loans and credit cards

A new survey shows that consumers continue to rack up debt on car loans and credit cards, whilst bankers are getting more worried that they won’t be able to pay it off. The last quarterly survey of Canadian and US bank managers anticipate the highest default of auto loan and credit card payments since the end of 2012.

Delinquencies on auto loans and credit cards will grow by midyear 2014

32% of Canadian bankers expect the balance on credit card accounts to increase in the next six months, while 25% figure defaults on auto loans will grow by mid-year. Despite those expectations, the report found consumer borrowing shows no signs of slowing. The survey also showed 60% of bankers expect average balance on Canadian consumers’ credit cards to increase over the next 6 months.

Banks anticipate amount of auto loans and credit cards to increase

44% of North American bankers have anticipated the amount of credit extended to consumers to increase over the next six months; however, just 14 per cent expected the amount of new credit to decrease. “Banks are walking a fine line — trying to grow their lending portfolios without taking excessive risks, said Andrew Jennings, FICO’s chief analytics officer. “But a slight increase in delinquencies is normal when availability of credit expands and borrowing increases,” he said. Canadians have taken advantage of low interest rates for credit cards and auto loans for many years. They have borrowed record amounts which has left them vulnerable – particularly if the interest rates start to rise.

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