Historically low interest rates are leading to a spate of loans that a significant portion of Canadians can’t afford, says a new analysis by MNP LTD.
MNP found that 28% of Canadians have taken on more debt as a direct result of the pandemic, including more liberal use of credit cards (15%) or lines of credit (8%) to pay off existing debt. Another 10% borrowed money from friends or family, while 3% took on bank loans or used payday loan services.
In a stark contrast, only 29% expressed confidence that they can handle life-changing events without borrowing further, while 25% said they can cope with the loss of employment. Another 43% are anxious about their lack of ability to cover their living expenses for the next year without going further into debt.
“Low interest rates may be providing unwarranted comfort. Some risk being lulled into a false sense of security that will put them in a debt trap,” said Grant Bazian, president of MNP. “When individuals experiencing financial turmoil try to manage it by taking on additional debt, the results can be disastrous. They end up trying to fill a hole by digging another one.”
Bazian cautioned that the major pandemic-driven financial stressors of last year will continue to make themselves felt well into 2021. This was particularly apparent in the Q4 edition of the MNP Consumer Debt Index, which reached its lowest level, 89 points, since its inception.
“Almost one year into the coronavirus crisis, the financial confidence of Canadians has reached a low point,” Bazian said. “The virus has understandably created significantly more financial anxiety for those directly impacted by job loss, declining wages and business closures. The Index shows that financial pressure is mounting for a large proportion of the country.”