Experts estimate there are more than 700,000 Canadians who might be watching the next Bank of Canada decision very closely, because even a modest interest rate increase could push them over the financial edge.
A new study out Tuesday from credit agency TransUnion shows that of the 26 million credit-active Canadians in the country, 718,000 can’t handle a 25-basis-point increase or they wouldn’t have enough cash flow to cover their debts. If rates are raised one percentage point -- something not likely to happen overnight -- nearly a million Canadians could end up in a cash crunch.
The next interest rate announcement is not due until mid-October but the consensus among economists is there won’t be a rate hike until the third quarter of 2017. That may be part of the problem, since consumers have come to expect rates will never go up and are now borrowing based on a prime lending rate of 2.7%
The report looked at so-called "super prime" customers — the people with best credit and scores in the 830-900 range — who make up the largest segment of the credit-holding population who can afford an increase of 25 basis points. Of "super prime" customers, TransUnion says a 25-basis-point increase to interest rates would cause cash-flow trouble for 239,000. Only 101,000 Canadians borrowing with sub-prime ratings, in the range of 300-599, would face the same cash crunch under those circumstances.
