Canadians getting lured onto 'auto-debt treadmill' - consumer watchdog

By Matt Scuffham
TORONTO, March 8 (Reuters) - Canadians may be purchasing
cars they cannot afford, having been lured onto an "auto-debt
treadmill" by offers of long-term loans with lower monthly
repayments but higher overall interest, the federal consumer
watchdog warned on Tuesday.
The warning adds to concerns that record-high consumer debt
and hot home prices in parts of the country could pose a risk to
Canada's economy and financial system.
Similar warnings about risks in auto lending have been made
over the past two years in the United States, fueled by
concerns about lenders' willingness to lengthen terms and chase
borrowers with lower credit scores, while offering loans that
exceed the value of the vehicle.
The Financial Consumer Agency of Canada (FCAC) said auto
loans with terms of more than six years have become a trend in
Canada, posing risks that consumers should consider carefully
before financing a deal. It said the loans are costly for
borrowers who must pay interest for a longer period of time than
the five years that would traditionally be the case.
The FCAC said in a statement that long-term loans are
especially expensive for consumers with low credit scores, who
may be subject to higher interest rates. It warned some
borrowers were buying new cars before their existing loans were
fully paid off, rolling over their debt into a new loan and
stepping onto what it called the "auto-debt treadmill."
"Consumers must carefully examine their needs and their
financial situation to ensure they can repay their car loans
without undue strain, and with a full appreciation of the total
interest charges and value of the car throughout the loan
period," said FCAC Commissioner Lucie Tedesco.
Canada's auto finance market has nearly doubled in the last
eight years, partly due to the offer of lower monthly payments
on longer-term loans.
Automakers reported higher February sales in Canada, with
some analysts rethinking earlier forecasts that Canadian
light-vehicle demand would level off this year following a
record breaking 2015. (Editing by Tom Brown)