A rising share of Canadians are at a critical intersection when it comes to car ownership.
Soaring living costs and lengthy auto-loan terms are exerting incredible pressure on household budgets. Is it even worth owning a car?
Scott Terrio, manager of consumer insolvency at Hoyes, Michalos & Associates, says this year marks a striking shift: for the first time in his 17-year career, people are reaching out with the explicit goal of returning their cars.
“It’s very non-typical. They’ve recognized that their car is killing them financially,” he said.
The growing willingness to walk away from a vehicle underscores how close many households are to a financial breaking point.
Canadians are stretched too thin
In many ways, cars are a cultural symbol of adulthood and independence.
Objectively, owning a car doesn’t inherently lend that meaning to where someone is in life. However, vehicles are very significant assets that many see as a life necessity.
With car payments increasingly competing against rent, groceries and other essentials, some borrowers have little choice but to reassess what they can afford to keep.
Terrio says that the cost of living underpins this phenomenon, noting that many Canadians are already strained by mortgages or purchases made during years of low interest rates.
Unfortunately, the numbers aren’t balancing anymore.
Mike Bergeron, manager of counselling at Credit Canada, says many households simply have to prioritize housing and food over transportation costs.
“It’s easier to carpool or use public transit than it is to find somewhere else to live,” he said.
Delinquencies on the rise
An Equifax Canada consumer credit report for the first quarter of 2025 shows used car loan delinquencies are a major contributor to rising missed payments. This is especially the case for loans originating between 2021 and 2023
New car loan delinquencies have climbed as well, although at lower levels.
Equifax’s second-quarter findings also show that the average new auto loan climbed to $35,586, up $1,567 from the year before. And with higher borrowing amounts and extended loan terms, monthly payments are becoming harder to manage.
“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.
He added that falling vehicle values have compounded the problem, leaving many borrowers owing far more than their cars are currently worth.
Boyd says younger Canadians, particularly Gen Z and younger millennials, feel the pressure most acutely.
Non-mortgage delinquencies, including overdue auto loans, have been rising across the board. There is a notable spike in borrowers under 36 who are 90 days or more behind on payments.
Tougher lending checks
Facing mounting risk, lenders are increasing scrutiny for new auto loans. Although originations have inched higher, the growth is largely among low-risk borrowers, Boyd notes.
Equifax data shows second-quarter auto-loan originations were up 2.9% year over year, and nearly 21% of applications required multiple rounds of review. That is roughly double the 10.5% rate seen before the pandemic.
By the third quarter, Equifax reported that the auto sector was still dealing with the aftereffects of inflated vehicle prices and high interest rates, which had subdued demand. Even so, new auto loan volumes rose 4.8% compared with a year earlier, hinting at a slow recovery in lending activity.
The returns process
For those already having trouble keeping up, many are just beginning to understand what happens when a car becomes unaffordable.
According to Terrio, Canadians are often surprised to learn they can tell their lender they can’t continue payments. At the same time, lenders will attempt to dissuade them because they don’t often want to repossess the vehicle.
When a financed car is voluntarily returned, the lender sells it to recover part of the outstanding balance. If the sale doesn’t cover what’s owed, the remaining amount becomes unsecured debt.
Borrowers can either try to repay it — often while still financially strained — or include it in a consumer proposal, Terrio says.
Both paths harm credit scores, but they can also stop the cycle of untenable monthly 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 stresses that anyone behind on payments should contact their lender before making any drastic decisions. Panicked borrowers, he says, sometimes assume they’re out of options simply because they’re a few months behind.
“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.
Before giving up a vehicle, Bergeron advises Canadians to “review all your options first before jumping to any conclusions.”
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