Thread by @globeandmail

In 2018, Natasha Hodgkin drove off the lot of a used-car dealership in Southwestern Ontario with a 2017 Kia Optima valued at less than $16,000 – and an auto-loan balance of nearly $29,000.
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Hodgkin's car payment amounted to more than $450 a month. Over the life of the loan, which had a term of seven years and an interest rate of nine per cent, she stood to pay more than $38,000. About a year and a half later, she filed for bankruptcy.
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While she had accumulated other high-interest debt as she struggled to pay her family’s bills as a single mom, the auto loan was by far the largest one she discharged in the filing.
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The story of how Hodgkin ended up with an auto loan far greater than the value of her car is a common one in Canada.

Consumer advocates say it highlights how lax regulation led to an auto-finance boom that’s driving scores of car buyers deep into debt.
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At the root of the problem are longer car loans – with terms of six, seven or eight years – and the practice of folding the unpaid balance on an older vehicle into the loan contract to finance a new one.
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Longer loans are appealing. For a set car price and interest rate, a longer repayment period allows buyers to make smaller installments. Similarly, for a set car payment, longer terms may tempt budget-conscious buyers to upgrade to a pricier vehicle.
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But longer terms also mean owners pay significantly more interest over the life of the loan. And extended-term loans have higher risks tied to negative equity, which occurs when the resale value of a borrower’s current vehicle is less than the outstanding balance on the loan.

Read the full story by @ealini here ⬇️
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