For anyone financing a vehicle right now, or struggling to keep up with an existing car payment, understanding why auto debt is climbing matters more than the headline number.
Why are car loan balances climbing so fast?
Higher vehicle prices are only part of the story. Loans are also being stretched over longer terms to keep monthly payments manageable, which pushes up the total amount owed even when rates hold steady. Used car loan delinquencies — especially loans originated between 2021 and 2023, when vehicle prices and interest rates were both elevated — are a significant contributor to rising missed payments, according to an Equifax Canada report on consumer credit trends. In response, lenders have tightened approval criteria for new auto loans, even as overall originations continue to rise modestly.
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Who’s feeling the most pressure?
TransUnion’s data point to a widening gap between borrowers. Subprime consumers actually pulled back slightly on non-mortgage borrowing over the past year, a sign of caution among higher-risk households, while super prime, prime plus and prime consumers kept increasing their balances. “Credit growth in the second quarter reflected a widening divide across risk tiers,” said Matt Fabian, senior director of financial services research and consulting at TransUnion Canada.
Nick Cherry, divisional chief executive officer of Ardent Credit Services and Phillips & Cohen Associates, said consumer credit stress remains a real issue for auto dealers and lenders even as some indicators stabilize. He points to higher borrowing costs, squeezed household budgets and extended repayment periods as the underlying pressure.
What would Dave Ramsey say about all this?
Personal finance personality Dave Ramsey has been blunt about car debt specifically, telling a caller that stretching for a vehicle they couldn’t pay cash for would keep them financially stuck. “Love yourself enough not to go into car debt,” he asserted. He has pointed to his own firm’s research on more than 10,000 millionaires, most of whom credited ditching car payments as a key step toward building wealth, and argues the fix isn’t a better loan — it’s skipping financing altogether and buying only what you can pay for outright.
What to check before you finance a car
- Compare the total cost of the loan, not just the monthly payment — a longer term can make a payment look affordable while adding thousands in interest over time
- Ask what happens if you need to sell or trade in early, since drawn-out financing raises the odds of owing more than the car is worth
- Get pre-approved financing before visiting a dealership, so you know your real rate ahead of any payment terms negotiated at the lot
- Budget for insurance, maintenance and fuel separately from the loan payment, since these costs have also been rising
What to do if you’re already behind
Falling behind on a car payment doesn’t mean the only options are defaulting or handing back the keys. Contact the lender before missing a payment, since many offer short-term hardship arrangements. A licensed insolvency trustee can also explain whether a consumer proposal, which restructures debt without full bankruptcy, might apply. Consumer proposals continued to account for close to 80% of insolvency filings nationally in Q2 2026, according to TransUnion, suggesting more Canadians are choosing structured repayment over walking away from debt altogether.
The fastest-growing debt isn’t always the riskiest, but auto loans deserve extra scrutiny right now since so much of the growth is tied to longer loan terms rather than incomes catching up. Before signing a new financing agreement — or refinancing one that’s become unmanageable — run the total cost first, not just the payment that fits this month’s budget.
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Writer and editor based in Toronto with experience in personal finance, insurance, arts and culture and branded content.