The majority of Canadians have taken out a personal loan to finance big-ticket items and expenses. While this fact isn’t surprising to anyone, the number one reason Canadians are doing this is.
Global comparison website Finder surveyed 1,200 adults and found that 65.3 per cent (or 19.52 million Canadians) have taken out a personal loan. Rather than use this money to pay off their mortgage or debt — two things most Canadians struggle with financially— the majority are putting that loan towards funding their car instead.
READ: More Canadians Feeling ‘Maxed Out’ By Household Debt: Survey
Of those who were surveyed, 41.25 per cent took out a personal loan to buy a vehicle. This is pretty significant compared to the mere 19.5 per cent who used their loan to finance their mortgage.
The latter is the second most common reason Canadians have a personal loan, followed by paying off debt (15.75 per cent).
Debt has long been a big issue for Canadians. According to a recent survey, nearly half (48 per cent) report being just $200 away from bankruptcy. High interest rates, student loans and credit card bills are just a few contributing factors to this.
That’s why Finder’s global editor-in-chief Angus Kidman says it’s “worrying” that “almost a fifth of Canadians have used a personal loan to finance a mortgage” as it could put them further into debt.
READ: Longer-Term Mortgages Can Lead To A Safer Economy: BoC Governor
“This means that in addition to paying off the mortgage itself, consumers will have to pay high interest on the personal loan,” he said in a news release. “That's a potential recipe for disaster.”
So why are the majority of Canadians putting personal loans towards cars instead of debt repayment? This could be influenced by the fact that baby boomers (age 55 to 64) are the generation that’s most likely to take out a personal loan (72 per cent), and that 50.37 per cent of them are more likely to put that loan towards buying a car.
READ: Millennials Make More Money, But Have More Debt Than Gen Xers
“Buying a car is one of the biggest purchases we ever make, so it’s not surprising that it’s the leading reason Canadians take out a personal loan,” Kidman said.
“If you can afford to save outright to buy a car, it's definitely cheaper, but that's not a realistic goal for most people, especially those who need a car for work. If you do need to borrow, a personal loan gives you flexible use of funds, access to a variety of lenders and more competitive rates than you'll get from a dealer.”
READ: The Cost Of Having A Car In Toronto Is One We Can No Longer Afford
Conversely, Gen Z is the least likely generation to use a personal loan, and only 8.51 per cent of them would use that loan towards a set of wheels. The younger generation is more likely to receive financial help from their parents, and thus be in less need of a personal loan, Finder noted.
