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She had a $29,000 loan for a $16,000 car. How auto finance is driving Canadians into debt

Posted by ERICA ALINI on Monday, April 18, 2022 Under: 848FINACE


In September, 2018, Natasha Hodgkin drove off the lot of a used-car dealership in Southwestern Ontario with a 2017 Kia Optima valued at less than $16,000 – and an auto-loan balance of nearly $29,000.

Her car payment amounted to more than $450 a month. Over the life of the loan, which had a term of seven years and an interest rate of nine per cent, she stood to pay more than $38,000 for a second-hand hatchback that, as Ms. Hodgkin’s papers show, turned out to have a persistent hood-latch issue.

Instead, about a year and a half later, Ms. Hodgkin, a Newbury, Ont.-based single mother of two, filed for bankruptcy. While she had accumulated other high-interest debt as she struggled to pay the family’s bills on one income, the auto loan was by far the largest one she discharged in the filing.

“I can’t do these payments any more,” Ms. Hodgkin, 33, who runs the fresh-meat department at a local catering company, remembers thinking at the time. “I’m just barely getting by, barely able to pay everything – you can’t live off scraps.”

While few Canadians default on their auto loans, the story of how Ms. Hodgkin ended up with an auto loan far greater than the value of her car is a common one in Canada. Consumer advocates say it highlights how lax regulation led to an auto-finance boom that’s driving scores of car buyers deep into debt.

At the root of the problem are longer car loans – with terms of six, seven or eight years – and the practice of folding the unpaid balance on an older vehicle into the loan contract to finance a new one.