Low interest rates and rising costs are pushing many Canadians down an ever riskier path to borrowing more
Six in ten Canadians are likely to rack up more consumer debt before the end of the year, including one in five who will use “buy now, pay later” options
MNP Consumer Debt Index – October 2021
Low interest rates and rising costs are pushing many Canadians down an ever riskier path to borrowing more.
CALGARY, Alberta, Oct. 04, 2021 (GLOBE NEWSWIRE) — The latest MNP Consumer Debt Index signals Canadians’ intention to borrow more – and potentially riskier ways – to make ends meet or finance their buying habits over the next few months.
Six in ten (58%) are at least somewhat likely to borrow more before the end of this year, including nearly four in ten (37%) who say they are willing to spend with a credit card that already has a balance. “Buy now, pay later” (BNPL) options, which have exploded alongside the surge in online shopping and financial instability caused by the pandemic, will likely be the method of payment for one in five Canadians (22 %) this autumn. About the same number (22%) are considering purchase financing options, and 15% say they are likely to apply for a new credit card. Additionally, one in ten (9%) are considering a payday loan.
“Buy now, pay later” options, payday loans and credit cards are particularly appealing to people with tight finances, but payment terms, fees and interest charges are largely under -estimated or misunderstood,” says Grant Bazian, president of MNP LTD., the nation’s largest personal insolvency firm. He warns Canadians against the lure of borrowing more from fast credit options and BNPL deals increasingly touted by online retailers.
“Retail incentives that offer the instant gratification of buying goods now and paying later aren’t always good value for consumers,” he warns. “What Canadians need to remember is that these credit options benefit lenders longer than people stay in debt due to high interest charges and various processing and/or late payment fees.
Thanks to lower interest rates, Canadians feel more comfortable taking on more debt. Notably, half (49%) say that with interest rates so low, they are more relaxed than they usually are about taking on debt, up four points since last quarter. Additionally, six in ten respondents (58%) say low interest rates provide them with a good opportunity to buy things they might not otherwise be able to afford.
Perhaps lured by the opportunity to make purchases that might otherwise be beyond their means, young people are more likely to use BNPL options, with four in ten (38%) Gen Z and three in ten (27%) Millennials planning to do so before the end of the year. Gen Z and Gen Y Canadians are also much more likely to say they are at least somewhat likely to use a payday loan service (24% and 13% respectively).
But Canadians also know that the low interest sauce has to end at some point. With nearly half (46%, -2 pts) saying they are $200 or less away from not being able to meet all their financial obligations, including 27% (-3 pts) who say they cannot already do not earn enough to cover their bills and repay debts, it is not surprising that the majority (52%, +2pts) are worried about the impact of rising interest rates on their financial situation. One person in three (35%, +1 pt) fears that the rise in interest rates will drive them into bankruptcy.
“Debt can be a useful tool, but every time you borrow, you take a financial risk. Interest rate hikes, unexpected loss of income, emergency expenses, or life-altering events are all potential outcomes that can make paying off debt nearly impossible,” says Bazian.
With the uncertainty brought by the fourth wave of COVID-19, Canadians are expressing some concern about their ability to cope with the changes in their lives without increasing their debt load. Many say they cannot financially cope with an unexpected car repair (21%, unchanged) or are sick and unable to work (28%, +1pt). Three out of ten (30%, +3pts) express a lack of confidence in their ability to cope financially with a job loss or a job change without going into debt.
“In addition to the unexpected financial turmoil caused by the pandemic, another issue we see playing out in our research is that households are increasingly grappling with the rising cost of living. With the price of basic necessities rising, some may take out more credit to make ends meet while others will have less room in the budget for debt repayment,” says Bazian.
Affordability concerns are widespread across the country, with many believing that life’s necessities have become less affordable over the past year. Forty-five percent say it is becoming increasingly unaffordable to feed themselves and their families. One in three say housing costs are less affordable, and about the same number (36%) say clothing or household items and transportation (33%) cost more. More Canadians also say it is becoming less affordable for them to put money aside to save (40%) or pay off debt (29%).
“Unmanageable debt is stressful enough on its own, but when there is already virtually no room for maneuver in the household budget and the cost of living is rising, people can start to feel hopeless. Anyone in this situation should know that there is professional debt help available. Licensed Insolvency Trustees are qualified professionals specially trained to get you out of debt. The sooner you reach out, the sooner you will find relief from financial stress, and the sooner you can start working towards a fresh financial start for you and your family,” says Bazian.
Every Canadian can get a free, confidential assessment of their financial situation from a Licensed Insolvency Trustee. As the only government-regulated debt professionals, they offer a full range of debt relief options, including consumer proposals, informal debt settlements, and bankruptcies.
Now in its eighteenth wave and conducted quarterly by Ipsos, the MNP Consumer Debt Index currently stands at 95 points, down two points from the last wave conducted in June 2021.
About MNP LTD
MNP LTD, a division of the national accounting firm MNP LLP, is Canada’s largest insolvency firm. For over 50 years, our experienced team of Licensed Insolvency Trustees and Advisors has worked with individuals to help them recover from periods of financial difficulty and regain control of their finances. With more than 240 Canadian offices coast to coast, MNP helps thousands of Canadians each year struggling with crippling debt. Visit DebtMNP.ca to contact a Licensed Insolvency Trustee or use our free service Do-It-Yourself (DIY) Debt Assessment Tools. For regular and succinct overviews on debt and personal finance, subscribe to the MNP’s 3-Minute Debt Reduction Podcast.
About the MNP Consumer Debt Index
the MNP Consumer Debt Index measures Canadians’ attitude toward their consumer debt and assesses their ability to pay bills, afford unexpected expenses and absorb fluctuations in interest rates without approaching insolvency. Produced by Ipsos and updated quarterly, the index is a leading barometer of financial pressure or relief for Canadians.
Led quarterly by Ipsos, the index has fallen 2 points since the last quarter to 95 points, having remained consistently below the established benchmark of 100 points for the past two years.
The latest data, representing the eighteenth wave of the MNP Consumer Debt Index, was compiled by Ipsos on behalf of MNP LTD between 3 and 7 September 2021. For this survey, a sample of 2,001 Canadians aged 18 and over were interviewed. Weighting was then used to balance the demographic data to ensure that the composition of the sample reflects that of the adult population according to census data and to provide results intended to approximate the universe of the sample. The accuracy of Ipsos online polls is measured using a credibility interval. In this case, the poll is accurate to within ±2.5 percentage points, 19 times out of 20, if all Canadian adults had been polled. The credibility interval will be wider among subsets of the population. All sample surveys and polls may be subject to other sources of error, including but not limited to coverage error and measurement error.
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