Canadians' reliance on scarily-costly loans often doesn't end well

Report shows that millennials are making an oversized share of insolvency filings

Canadians' reliance on scarily-costly loans often doesn't end well
Steve Randall

The use of extremely-high-interest loans is one of the reasons why Canadian millennials are increasingly filing for insolvency – but they aren’t the only ones.

While the cohort accounts for 27% of Canada’s adult population, they filed 49% of insolvencies in 2022, the analysis by insolvency experts at Hoyes, Michalos & Associates reveals.

The report discovered that 35% of millennials have a worrying-high level of unsecured debt, an average of more than $47,000, with student loan debt accounting for 30% of this.

Not only is their unsecured debt high, but 55% had at least one extremely-high-cost loan with interest rates typically between 29.99% and 59.99%, with high fees on top of interest charges. The percentage of millennials with these loans has risen more than 17% since 2021.

However, they were not the only generation to be relying more on these costly borrowing options. In 2022, 53% of all insolvent debtors had at least one rapid loan - such as payday loans, extremely-high-interest lines of credit and installment loans - and usage is increasing.

"We are seeing not just an increased use of traditional payday loans, but a much more dramatic rise in the use of larger, longer-term high-cost loans," said licensed insolvency trustee Doug Hoyes. "We estimate that one-third of quick cash loans among insolvent borrowers are now high-interest installment loans."

In 2022, the average insolvent debtor with a rapid loan owed a total of $12,100 to four different lenders, up from just under $11K in 2021.

"Despite subprime lending being a small component of overall lending in Canada, its fast growth is creating a crisis among heavily indebted borrowers and these rapid loans are a significant driver of consumer insolvencies" added Hoyes.

Typical millennial debtor

While rapid loans are increasing, so is another costly form of credit, with 87% of millennials owing credit card debt with an average of $13,948, up 1.5% year-over-year. 

"Millennials were the only age group to see a rise in their unsecured debt obligations last year," said Hoyes.

The study shows that millennial debtors’ tax obligations were up significantly with 46% having tax debts, up from 37% in 2021. They owed an average of $12,137 in 2022. CERB collection was a contributing factor.

"The average insolvent Millennial is just 33 years old, yet they are 1.7 times more likely than Baby Boomers and 1.4 times as likely as Generation X to file insolvency, relative to the population," commented Ted Michalos, licensed insolvency trustee. "We've noticed an overall trend since 2016 that the average insolvent borrower continues to get younger, with student loan debt and extremely high-cost loans being the main drivers of their insolvency."