Barely a year has passed since our colleague, William Clavey, addressed the sudden rise in interest rates in a topical piece. Since then, the situation has changed, and it is not for the best for consumers. Indeed, interest rates are reaching heights that we have not seen for twenty years.
From second chance, to first chance
In the not-so-distant past, second chance credit started with rates that were around 8.99% and could exceed 20 to 25% until third chance credit. However, the recent rate hike is hitting hard those who had promotional rates in traditional financing. Indeed, a recent visit to the website of various manufacturers allowed me to see that the rates had continued to rise, since William Clavey’s article on this subject.
On average, the rates are between 1 and 3% higher, since last year at the same date. In some cases, they are even higher. The most striking, I saw on the side of Jeep with its Gladiator 2023 which presents a lease offer over 60 months at a rate of 10.29%. Enough to fall out of your chair when you realize that this rate is for customers who have a good credit history.
Returning to the example of the Kia Soul EV raised last year, the conclusion is the same. At the time, we compared the rate for a lease of 48 months and 16,000 kilometers per year, between February 2022 and May 2022. We then found that the rate had increased from 3.49% to 5.49% . By repeating the exercise at the time of writing these lines, the rate displayed on the manufacturer’s website is 8.89%, still for the same vehicle and the same transaction. When we look for a purchase over 72 months, the Kia Canada site shows a rate of 6.49% for a 2023 Kia Soul EV, which remains high.
On the side of used vehicles, same story. Indeed, this market is not to be outdone, since it is currently not uncommon to see interest rates between 7.99 and 9.99% for a used vehicle.
Meanwhile, 2023 Ford F-150s at 1.99%, but how is that possible?
Meanwhile, Ford Canada’s website is listing the 2023 Ford F-150 at 1.99%, for 60 months financing. How is it possible? You should first know that this interest rate is only offered when the vehicle is financed by Ford Credit and not by a traditional financial institution. It should be remembered that, when the rates are low, the vehicle does not have any rebates applicable by the manufacturer. So your 1.99% ends up in a way in the vehicle bill.
Paying too much?
Are we paying too much? The answer is yes, because the objective of Canada’s central bank is to discourage people from spending lavishly. However, that interest rates were higher in the early 90s. The example drawn was a new 1993 Ford Escort which was offered at a rate of 12.50%, which approximates reality current market, in 2023.
