Used car loan delinquencies, particularly among loans originated between 2021 and 2023, are significantly contributing to the increase in auto missed payments, according to an Equifax Canada report on consumer credit trends for the first quarter of 2025 (Photo by Justin Sullivan/Getty Images) · Justin Sullivan via Getty Images
A growing number of Canadians are considering returning their financed cars as the strain of high living costs and long-term auto loans continues to stretch their household budgets, according to debt and insolvency experts.
Scott Terrio, manager of consumer insolvency at Hoyes, Michalos & Associates, says that in his 17 years on the job, this is the first year he’s seen people contacting the firm with the intention of returning their vehicles.
“It’s very non-typical,” he said. “They’ve recognized that their car is killing them financially.”
The trend suggests more Canadians are reaching a financial breaking point where vehicle ownership, once considered essential, is no longer sustainable. Experts say car payments are increasingly competing with rent, food and other fixed costs, prompting some consumers to reassess what they can realistically afford to keep.
The cause is “absolutely the cost of living,” Terrio says, adding that struggling Canadians are desperate right now. And some are already over-leveraged on homes, cars, or other consumer goods due to a prolonged period of very low interest rates.
Canadians are reaching a point where they must prioritize essentials such as rent and food over car payments, Mike Bergeron, Credit Canada’s manager of counselling, says.
Transportation is often the next thing they look to cut, he adds. It’s easier to carpool or use public transit than it is to find somewhere else to live.
Used car loan delinquencies, particularly among loans originated between 2021 and 2023, are significantly contributing to the increase in missed auto payments, according to an Equifax Canada report on consumer credit trends for the first quarter of 2025.
New car loan delinquency rates also rose, but remained lower by comparison. In its second-quarter report, Equifax stated that the average loan amount for new auto loans reached $35,586, an increase of $1,567 from the previous year.
“High vehicle prices and increased borrowing amounts from extended loan terms are contributing to higher monthly payments and a greater risk of delinquency,” said Olivier Boyd, a licensed insolvency trustee with MNP. “Many vehicle values have decreased, leading to loans being in a higher deficit relative to the market value,” he said.
Gen Z and younger millennials, particularly, are struggling, Boyd says. Non-mortgage delinquency rates, including those for auto loans, have been increasing, with a notable rise in 90-day-plus delinquencies among borrowers under 36 years old.
In response, lenders are tightening approval criteria for new auto loans, which are still seeing a slight increase in originations, but mostly for low-risk customers, Boyd says.
According to Equifax, second-quarter auto-loan originations rose by 2.9 per cent year-over-year. Nearly 21 per cent of applications underwent multiple rounds of review, a significant increase from 10.5 per cent pre-pandemic.
In its third-quarter report, Equifax notes that the auto industry continues to face headwinds, two years after experiencing elevated vehicle prices and high interest rates that curbed demand. New auto loan volumes still rose 4.8 per cent compared with a year earlier, signalling a modest recovery in lending activity.
For borrowers already struggling with payments, some are also beginning to learn about their options when a vehicle becomes unaffordable. Canadians are often shocked to learn they can tell the lender financing their car that they’re done paying, Terrio says. The lender will look for ways to discourage them because they don’t want to take the car back, he adds.
When a borrower voluntarily returns a financed vehicle, the lender typically sells it to recover part of the loan balance. If the sale price is lower than the amount still owed, the remaining balance becomes unsecured debt that the consumer can either repay — often while still struggling — or include in a consumer proposal, Terrio says.
Both moves can hurt a borrower’s credit score, but they can help break a cycle of unaffordable payments. “It’s a dramatic move, but it’s the difference between partial surgery and surgery,” Terrio said.
“None of this comes without pain.”
Bergeron says anyone behind on payments should first speak with their lender and explore every available option before giving up their car.
“Sometimes, people get into a panic mode that they’re already a few months late, and they just don’t want to deal with it anymore because it’s so stressful,” he said.
Review all your options first before jumping to any conclusions, Bergeron adds.