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Auto Loans Debt: A Risk to Canada?
– ratesupermarket.ca
When it comes to shopping for a car, most people don’t buy on price – they buy the payment.
But a new study says most drivers can’t really afford to buy a set of wheels – even the gently used vehicles most financial guides recommend – to begin with.
American comparison site iSeeCars.com analyzed 25 million used cars sold in the 50 largest metropolitan areas in the U.S. and concluded most of those purchases would leave the average household over-extended.
Things are likely worse on this side of the border since comparisons between Canada and U.S. prices regularly show that Canadians pay significantly more than Americans for their vehicles.
Too Much Car, Too Little Income
As a baseline, the study used the ‘20/4/10’ rubric, which calls for used car buyers to put down 20 per cent, take out a loan for no longer than four years and spend no more 10 per cent (15 per cent if you add in maintenance and car insurance) of their monthly income on a car payment.
Using that formula, it’s clear that many car buyers are juggling payments that are higher than they can really handle, and for a term far longer than ideal, to get behind the wheel…
