TransUnion warns that millions of Canadians may not pay

their debts on time.

Inflation may be too much for some consumers as overall consumer

debt increased to a new record high in the second quarter.

The amount of debt owed by Canadian consumers increased in the second

quarter of 2022, setting a new record.
Canadians owed a staggering $2.2 trillion, a 9.2% increase from the previous year.
Debt increased by more than 16% from the end of 2019 to that point.
The number of Canadians having a credit balance has increased by 2% over the
past year to 27.6 million, according to TransUnion's Canada Q2 2022 Credit
Industry Insights Report.
According to the report, up to 7.8 million people would find it difficult to keep up
with debt repayments if the cost of living rises by $200. A $500 increase might
have an impact on 9.6 million customers.
Debt levels are anticipated to rise further, but at a higher cost due to rising
interest rates, as long as inflation is not under control.

Matt Fabian, director of financial services research and consulting at TransUnion

said that “We’ve seen an increase in minimum payment amounts of up to 10% in
the first half of 2022, depending on the combination of products consumers hold,
along with a slight deterioration in payment behaviours,”
Who is lending whom what?

According to the research, 4.8% more sub-prime borrowers increased their credit
balances while 5.1% of customers with good credit—the super prime cohort—
kept doing so.

“During the pandemic we saw a decline in credit participation among below prime
consumers, so this marks a re-engagement of this segment as potentially the
effects of inflation and interest rates have driven demand, while lenders have
increased their risk appetite in this space,” Fabian added.

Average personal loan balances increased more than 20% year over year to
$47,144 and credit card balances increased 11% to $3,448. Personal loans
recorded the largest growth among all the major credit product groups.

Mortgages also experienced a considerable increase in the year (up 9.5% to

$304,772).

Increase in delinquencies

The general rate of delinquencies remained low despite the large amounts of
debt, including among sub-prime borrowers.
In those consumers who were 90 days past due on any account, there was a 4-
point rise, but this was still lower than pre-pandemic levels.

The increase in delinquency has generally been small, according to Transunion,

and relatively insignificant given the post-pandemic surge in lending activity.

However, 26% of respondents believe they will not be able to pay their debts or
loans, as evidenced by 41% of respondents saying their financial situation is worse
than expected in the second quarter. , consumers are still concerned about the
economy and finances. .
“The implications of interest rate hikes and rising inflation are significant, with the
heightened cost of living that leads to higher credit balances as consumers
borrow to fund day-to-day expenses,” said Fabian.
He issued a warning that as people take on more debt at greater rates, the
number of those who fail on their loans is quickly growing.

“A proportion of vulnerable consumers who do not have the capacity to meet

these increased payments may face the additional impacts of the current interest
rate environment escalating before it recedes, setting them up for a sustained
period of payment shock,” he said.