The successive increases in the key rate are not helping car buyers, whose financing costs continue to climb.
The Bank of Canada announced on Wednesday the tenth increase in its key rate since March 2022. This is always bad news for home buyers and holders of variable rate mortgages. It also has a potential effect on borrowers of all stripes. Lenders also tend to increase their interest rates for purchases of various goods and services, such as cars, furniture, home improvements and travel.
Thus, according to Statistics Canada, the average interest rate in the country for “cash advances for non-mortgage loans, consumer credit, personal loans, including car loans” has gone from 5.11% in February 2022 to 7 .69% in April 2023, dropping to 8.03% in January 2023.
In automobile financing specifically, average interest rates have remained around 3% between 2018 and 2021, reaching 5.58% in the last quarter of 2022. These data are taken from a report published Monday by the Corporation des Automotive Dealer Associations (CADA), using figures provided by JD Power. It also indicates that buyers are extending the term of their loan by a few months.
“If I buy a new car, with rates like that, it hurts,” commented Charles Bernard, senior economist at CADA. You would think that people would turn to used, but there is so little inventory that it is sometimes more profitable to go new. »
According to the AutoHebdo.net Price Index, the price of new and used cars continued to increase between March 2022 and March 2023 in Quebec, i.e. by 25.5% for new cars and 8% for used cars. , which averages $59,243 and $37,218, respectively. As for Statistics Canada’s Consumer Price Index, the estimate is much more modest. While the institution had calculated an annual increase of 11.7% in Canada for all types of vehicles in March 2022, it is indicated that it would have been 4.7% in March 2023.
Buyers are not cooled
Regardless of the exact figure, car loan amounts have never been higher. The CADA team believed that interest rates, coupled with car prices, would dampen the enthusiasm of buyers. But that’s not really the case. According to the association’s report, dealer sales of new vehicles increased by 20.60% in 2022 compared to 2021. The number of new registrations fell compared to 2021, but it is slightly higher than in 2020.
Mr. Bernard believes that the phenomenon can be explained by two variables. “The first is that after the pandemic, many people have savings and are able to afford these high costs. Second, people are tired of waiting for their vehicle, which sometimes wasn’t available for 18 months,” he said.
The economist believes that demand could perhaps calm down at the end of 2023 or in 2024. But according to him, prices will come down significantly. “The manufacturing price has increased a lot for manufacturers,” said Mr. Bernard.
Car rental, meanwhile, is no longer as advantageous as it was in the past, according to Jesse Caron, automotive expert at CAA-Quebec. It also bears the brunt of interest rate hikes. “When the monthly rental payments are made almost as high as for a purchase, you have to ask questions,” said Mr. Caron.
Good advice
In this context, what strategy to adopt if you plan to borrow to realize a dream? There are several ways to finance your project, whether directly with the merchant, large banks or other types of lenders. Each client must therefore choose according to their needs, says Louis-Philippe Ménard, Senior Director, Consumer Financing Solutions at National Bank.
” Good deal goes through the right advice, he said. You have to be curious, get informed, ask questions and trust yourself. If we feel that we are not comfortable, we have the right to say no and to go and see other avenues. »
The websites of several manufacturers and financial institutions allow you to compare various options. For his part, Mr. Caron recommends avoiding loans with a term of more than six years. Moreover, CAA-Quebec presents on its website advice on how to find your way and not be fooled.