The Canadian credit landscape is undergoing a significant transformation. As Canadians continue to feel financial stress, this has equated to changes in consumer spending as highlighted by Equifax Canada's Market Pulse Consumer Quarterly Credit Trends Report for Q2 2023. Here are four emerging trends to look out for in 2023.
1. Signs of a Slowdown in Credit Card Spending
The growth in consumer spending is finally starting to slow. Pressure from higher costs of living and continued higher interest rates are potentially causing consumers' more cautious approach to credit usage. Minimum monthly payment requirements for credit products like auto and cards have risen considerably, up by over 5 per cent and 11 per cent compared to last year, demonstrating the increased credit balances of Canadians.
2. Consumers are Looking at Alternative Credit Options
With the increasing cost of borrowing, many consumers are seeking alternative credit products that offer lower interest rates. Insights from Equifax Canada reveal that consumers are shopping around more for favourable mortgage deals at the time of their mortgage renewal. Some are also turning to alternative credit options such as unsecured lines of credit, personal loans, and student loans to cover the costs of high interest auto loans especially on used cars, a trend that aligns with their desire to minimize the impact of high interest rate credit products on their finances.
3. Mortgage Holders are Feeling the Pressure
The impact of interest rate hikes is most apparent in the
mortgage market. An
increase of 475 basis points in interest rates over a short period has
caused many mortgage holders to grapple with high monthly mortgage
costs. Delinquency rates have surged, particularly in Ontario and
B.C., where severe delinquencies rose 86.9 per cent and 33.9 per cent
year-over-year, respectively but levels remained below pre-pandemic.
This situation is partly driven by substantial home price increases,
larger loan amounts, and an elevated cost of living.
4. Financial Stress Continues Amidst the High Cost of Living
Financial stress remains a pressing issue for many Canadians, intensified by the high cost of living. 175K more consumers have missed a payment on at least one non-mortgage product, an increase of 18.8 per cent from Q1 2022. While the impact of the economic downturn might be less evident for high income groups, it’s the lower income segments that could be struggling to keep up with the rising costs amidst depleting pandemic savings.
The Canadian credit landscape is evolving rapidly, with consumers adapting to a new era of financial caution and seeking alternative credit solutions. These trends highlight the need for lenders to make informed credit decisions in the face of economic volatility. Staying informed and proactive may be an essential step to securing a stable financial future amidst the ongoing changes.
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