Canadians Rethink Car Ownership as Loan Costs Bite Hard

A growing number of Canadians are reconsidering car ownership as rising financing costs and high living expenses push household budgets to the breaking point. Debt and insolvency experts report an unusual trend: more people are contacting lenders with the intention of returning their financed vehicles because payments have become unsustainable.

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For many households, car loans now compete directly with rent, groceries, and other essential expenses. Extended loan terms, higher vehicle prices, and increasing interest rates have driven monthly payments up, leaving some borrowers feeling trapped. Younger Canadians, particularly Gen Z and younger millennials, are facing the greatest strain, with delinquency rates for auto loans rising notably among borrowers under 36.

Used car loans, especially those originated between 2021 and 2023, have seen the highest delinquencies, while new car loan defaults remain lower but are trending upward. Average loan amounts for new vehicles have increased, further stretching budgets and increasing the risk of missed payments. Many borrowers find that the market value of their vehicles has declined faster than their loan balances, leaving them owing more than the car is worth.

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In response, lenders are tightening approval criteria, particularly for higher-risk applicants, though new auto loans continue to see modest growth. Despite these challenges, some Canadians are exploring their options, including voluntarily returning financed vehicles. While such a move can negatively impact credit scores and leave remaining loan balances as unsecured debt, it can also provide relief from crushing monthly payments and prevent further financial deterioration.

Experts emphasize that surrendering a car should be a last resort. Borrowers behind on payments are advised to speak with lenders and explore every possible option to manage their loans before taking such drastic steps. Alternatives like restructuring payments, refinancing, or negotiating temporary relief may help keep the vehicle while reducing financial strain.

As Canadians grapple with the dual pressures of high auto costs and living expenses, car ownership—once seen as essential—is increasingly viewed as a discretionary financial burden. For many, the decision to return a financed vehicle represents a difficult but necessary step toward regaining control over personal finances and avoiding long-term debt traps.