Canadian Credit Market Set to Grow in 2025 Amid Expected Lower Cost of Living and Interest Rates
Key findings from TransUnion report:
- Number of Canadians with access to credit and total outstanding consumer balances reached new records in the third quarter of 2024, mainly driven by Millennial and Gen Z consumers
- With an expectation of subsided inflation and lower interest rates, 2025 forecast projects growth in credit activity and improved performance
TORONTO, Nov. 26, 2024 (GLOBE NEWSWIRE) -- More Canadians borrowed and used credit in the third quarter of 2024, as interest rates and inflation continued to decline, pushing the total consumer credit debt to a record $2.5 trillion, a 4.1% year-over-year (YoY) increase, according to TransUnion's Q3 2024 Credit Industry Insights Report (CIIR). The number of Canadians with at least one credit product rose to 32.2 million, a 3.1% increase YoY, and the number of Canadians with an outstanding balance also rose to 29.7 million, a 2.8% increase YoY.
Approximately 45% of the total household debt in Canada is held by Millennial and Gen Z consumers, who hold $1.1 trillion in outstanding balances. As more Gen Z consumers have entered the credit market, they have taken on more types of debt, making them the fastest growing segment of Canadians carrying an outstanding balance.
While the number of Canadians with access to credit increased across all risk tiers1, subprime consumers had the largest increase, with 5.6% YoY growth in Q3 2024. This is primarily due to a portion of consumers who have struggled to make payments and have migrated into subprime from other risk tiers as their credit scores have dropped. While this riskier segment had the highest rate of growth, prime and better consumers still represent over 70% of total consumers with an outstanding balance, indicating a relatively healthy risk profile of the overall consumer credit population in Canada.
As falling interest rates have provided some relief and the number of Canadian consumers using credit has continued to grow, there has been a spike in new origination volumes, which increased 5.3% YoY leading to $123 billion in new outstanding balances in the most recent quarter. All major credit products saw a healthy YoY growth in originations, except for line of credit product, which was down by 8.4% YoY.
Following a period of persistently high inflation rates, combined with recently rising unemployment rates, more consumers have missed payments, as serious delinquencies2 rose 17 bps to 1.73% YoY in Q3 2024.
As debt levels have grown, consumers are facing higher minimum payments, especially for mortgages, which have risen 11% YoY due in part to higher interest rates. The overall increase in delinquencies is mainly due to missed payments on non-mortgage products, with serious non-mortgage delinquencies at 1.71%, the highest level observed since early 2019.
Regional trends are also prevalent as Alberta led all provinces with 2.21% serious consumer delinquency, followed by Manitoba with 2.02% and New Brunswick with 1.99%. Ontario experienced the highest rise in delinquency in the third quarter at 24 bps YoY, followed by Manitoba at 19 bps. More regional insights are available here.
Mixed trends in the economy and consumer credit market including lower demand, and worsening credit performance saw the TransUnion Credit Industry Indicator (CII) drop for the fifth month and is down by 7 points from the prior year to 101 in September 2024, reflecting a deterioration of the health of the Canadian credit market. The indicator has been impacted by the fact that interest rates remain elevated in near term comparisons, weakening employment offset by the rate of inflation has eased. In addition, non-mortgage balances have remained flat and delinquency rates are also higher across most products.
"Delinquency rates are a lagging indicator, and we expect that lowering inflation combined with interest rate reductions may provide a relief valve for some struggling consumers," said Matthew Fabian, director of financial services research and consulting at TransUnion Canada. "Lenders should continue to pay heightened attention to more vulnerable consumers, as well as continue to monitor for early warning signals of risk. Canadian consumers facing pressures should focus on making at least the minimum payments on outstanding credit, when possible, to help ensure continued access to credit and prevent any potential negative impact to their credit profiles."
2025 Forecast: Varied, but Optimistic
In 2025, TransUnion expects the Canadian credit market activity and performance to be mixed, based on Q3 2024 consumer risk profiles, the projected reduction in interest rates and inflation, and some lingering effects of the past three years of elevated inflation and high cost of debt.
Taking these macro and credit dynamics into account, TransUnion conducted a forecast for Q4 2024 through Q4 2025, by leveraging four groups of macroeconomic variables in the projections: economic activity, unemployment, inflation and interest rates. Those projections looked to answer the following questions:
- As interest rates decrease and economic activity improves, what can be expected in terms of demand and supply of credit?
- As consumers continue to leverage credit more responsibly, what can be expected in terms of credit performance?
TransUnion uses key macroeconomic scenarios, based on forecasting data from S&P, as input for their credit forecast model. These scenarios suggest that economic activity is expected to improve as people are spending more and job opportunities are stabilizing. Households will likely have more money to spend as both savings and wage growth increase faster than inflation. Canada's job market should keep growing, though not as quickly as the past two years, but it will support consumer credit stability.
Inflation is expected to stay within the Bank of Canada's 2% target, driven by a drop in gas and housing costs. Lower interest rates are expected to help revitalize the mortgage market as consumers who previously waited on the sidelines might enter as affordability improves. Additionally, a lower mortgage rate environment should jump start the refinance market that has been relatively stagnant over the past three years. Recent changes to federal mortgage lending guidelines – allowing 30-year amortizations and raising the maximum price eligible for the Canada Mortgage and Housing Corporation insurance this December – is expected to lessen the drag on household finances from mortgage renewals and lead to a faster rebound in housing sales and home prices. The objective of this forward-looking view on the market is to provide a basis for forecast originations (segmented by risk), average consumer balance (segmented by risk as well) and balance-level delinquency for cards, personal loans, auto loans, lines of credit and mortgages.
- Credit cards: TransUnion forecasts continued growth for credit cards. While origination volumes are expected to be relatively flat to prior year at 7.2 million new cards in 2025, average balance per consumer is expected to grow to $3,320 in December 2025 (up 3.9%) for prime and above consumers with a card, and increase to $9,231 (up 1.6%) average balance per consumer for those in below prime risk tiers. Our forecast shows a slight drop of 2 bps in consumer-level delinquency rates through 2025, reaching 0.89% by end of the year.
- Auto loans: Growth is expected to skew toward riskier borrowers in the below prime risk tiers, with originations in that segment projected to grow 11% by the end of 2024 and increasing another 7% through 2025, as vehicle inventories replenish and demand remains strong. Loan sizes are expected to remain relatively flat as lower interest rates may somewhat offset the continued shift toward higher average purchase price. Average loan amounts are anticipated to drop by 1% for below prime loans through 2025, while above prime balance growth is likely to fall 6% YoY. Overall consumer-level delinquency rates are expected to improve slightly, down by 2 bps YoY by the end of 2025.
- Personal loans: A more favourable interest rate environment is expected to help revitalize the personal loan market. Acquisition growth is forecasted at 11% YoY for loans to prime and better consumers and 18% YoY for below prime consumers by the end of 2025. Average balance growth is likely to remain flat at just under 1% for below prime consumers and drop 2% for prime and better consumers.
- Mortgages: As the Bank of Canada continues to lower its monetary policy rate, lower mortgage rates and a resurgence in housing demand, combined with continued low inventory, are anticipated to drive increased activity in the Canadian housing market. Mortgage origination volume is forecast to increase 7% YoY from Q4 2024 to Q4 2025, with the concentration of new originations skewed to prime and better consumers. In line with home values, outstanding mortgage average balance is forecasted to grow up to 3% by end of 2025. Driven by the quality of mortgage loans booked, delinquency rates are expected to stay relatively flat, as experienced in recent years and as macro pressures subside for Canadians.
"Though pockets of stress may linger, the continued improvement of macroeconomic conditions, such as inflation and interest rates, is expected to ease pressure on consumer wallets," Fabian said. "Consumers have been resilient, and we expect to see growth from an increase in originations and average balances, and a positive impact on delinquencies. Lenders should leverage enhanced consumer-level data and attributes to predict these pockets of growth and address consumer needs to drive consumer trust and loyalty."
| Q4 2025 Forecast | ||||
| New Loan Origination Volumes in 000s FY 2025 vs FY 2024 | Below Prime Average Loan Balance as of Q4 2025 | Prime and Better Average Loan Balance as of Q4 2025 | Serious Delinquency as of Q4 2025 | |
| Credit Cards | 7,125K (+0.12%) | $9.231 (+1.6%) | $3,320 (+3.9%) | 0.89% (-2 bps) |
| Auto Loans | 1,727K (-1.8%) | $23K (-3.6%) | $26K (-8.3%) | 0.92% (-2 bps) |
| Personal Loans | 1,594K (+11.1%) | $16K (-2.4%) | $24K (-3.3%) | 2.27% (-17 bps) |
| Mortgage | 948K (+8.3) | $379K (+7.8%) | $349K (+2.1%) | 0.31% (+2 bps) |
TransUnion Canada's Credit Industry Insights Report (CIIR) is produced quarterly to map consumer credit market trends and health.
About TransUnion® (NYSE:TRU)
TransUnion is a global information and insights company with over 13,000 associates operating in more than 30 countries, including Canada, where we're the credit bureau of choice for the financial services ecosystem and most of Canada's largest banks. We make trust possible by ensuring each person is reliably represented in the marketplace. We do this by providing an actionable view of consumers, stewarded with care.
Through our acquisitions and technology investments we have developed innovative solutions that extend beyond our strong foundation in core credit into areas such as marketing, fraud, risk and advanced analytics. As a result, consumers and businesses can transact with confidence and achieve great things. We call this Information for Good® — and it leads to economic opportunity, great experiences and personal empowerment for millions of people around the world.
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Contact: Katie Duffy
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1 According to TransUnion CreditVision® risk score: Subprime = 300-639; Near prime = 640-719; Prime = 720-759; Prime plus = 760-799; Super prime = 800+
2 Serious consumer delinquency is defined as the percentage of consumers that hold an active credit product by type that have missed multiple payments due on any product. Serious delinquency is 90 days or more of missed payments for credit cards and 60+ days for all other products.
