Are rising debt and defaults a warning sign of a looming economic crisis?

Some subprime lenders appear to be facing strain as debt levels and the rate of borrower defaults start to rise in Canada and the U.S.

Some subprime lenders appear to be facing strain as debt levels and the rate of borrower defaults start to rise in Canada and the U.S., which may leave many wondering if there are early parallels to the 2008 financial crisis.

The concerns come as U.S. tariffs and the war in Iran continue to ramp up the pain on consumers, and as that financial hurt appears to be bleeding out into the middle class.

Experts warn that if a crisis rapidly accelerates the problem, there could be ripple effects to the broader economy.

“If more and more Canadians continue to default, then the company has problems, and we don’t want to go back to 2008,” says Stacy Yanchuk Oleksy, CEO of Money Mentors, an Alberta-based credit counselling service.

“What we’ll see is insolvencies will go up. Well, nobody’s better off if more and more Canadians are insolvent, right? Someone’s got to pay for that.”

The higher cost of living brought on by a spike in inflation since the pandemic and a rise in interest rates have made it challenging for many Canadians to make ends meet.

This is especially the case for lower-income households that typically have lower credit scores.

Lower credit scores means it’s more difficult to get a loan or line of credit compared with a higher score. This can include a mortgage, auto loan, credit card, bank loan or even a personal loan.