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Credit specialists warn of creeping negative equity

Wednesday, February 19th, 2020

Credit specialists warn of creeping negative equity

Dark clouds seem to be collecting within the credit landscape in Canada, as well as the forecast is just starting to appear to be pain.

In a March report, credit-rating company Moody’s stated how many automobile customers with negative equity, which takes place when an automobile customer owes more on a trade-in car than it’s well worth, is in the boost in Canada, with all the blame, to some extent, likely to longer terms on automotive loans.

“Longer consumer auto-loan terms increase ‘negative equity’ . because vehicle values fall quicker as compared to loan is repaid,” the Moody’s report stated. “This shortfall is generally rolled in to the initial stability of the car that is new, compounding the negative equity and credit danger.”

Spurred by low interest, increasing automobile expenses while the growing interest in more costly light vehicles, more Canadian individuals are taking on longer loans. It’s a trend just like that noticed in the usa, where loan terms have already been in the increase for decades.

“We don’t observe that in Canada just as much as within the United States yet,” said Matt Fabian, director of research and analysis at TransUnion Canada. “But it is beginning because they’re starting to extend the terms a little longer. That’s a thing that is going to be coming beingshown to people there as those loans begin to expire.”

LONGER LOANS GROW

Based on J.D. energy Canada, 53.6 percent of finance agreements industry-wide were 84 months or longer in 2017, that’s up from 50.3 percent in 2015. (more…)