Canada’s riskiest borrowers are taking on bigger debt burdens, pushing national average debt levels up nearly three per cent in the first quarter of 2016.

TransUnion’s latest quarterly credit review found that the average Canadian’s non-mortgage debt rose to $21,348 in the first quarter of 2016, up 2.7 per cent from the first quarter of 2015.

Borrowers classified as subprime by the credit monitoring agency’s risk measure saw their average credit card balance grow by 5.7 per cent year-over-year to $6,601. The majority of borrowers, those with prime or above ratings, actually reduced their balances.

TransUnion found that balances on instalment loans — a relatively new high-interest product — grew 4.83 per cent year-over-year to an average $23,591. Individuals who do not qualify for lower interest bank loans are most likely to resort to these short-term loans, which can carry annual interest rates as high as 59.9 per cent, just shy of Canada’s 60 per cent usury rate.

Subprime borrowers comprise just 13 per cent of the 26 million credit profiles TransUnion tracks in Canada, said Jason Wang, TransUnion’s director of research and analysis for Canada.

“Subprime has grown, but it is still very small,” he said.

“This is a relatively new trend … but it’s not the end of the world.”

TransUnion also found that serious delinquency rates — those with accounts 90 or more days past due—increased three per cent in the first quarter of 2016. The largest increases were booked in provinces most affected by the oil price slump — Alberta and Saskatchewan.

CIBC economist Benjamin Tal said he is concerned that subprime lending is “driving the bus.”

He has written about the risks involved in Canada’s alternative financial lenders or “shadow lending” sector and estimates the small but rising number of subprime mortgage borrowers is less than five per cent. Mortgage loans to high-risk borrowers are a bigger concern because of the higher amounts of money involved. They are behind the U.S. housing crisis that led to the global recession of 2008-2009.

The Bank of Canada has warned the shadow banking could be risky for the financial system due to a lack of transparency about the lenders’ and borrowers’ balance sheets.

Tal said higher debt loads are one of the costs of keeping interest rates low for so long — they make it cheaper for risky borrowers to take on more debt.

Meanwhile, the market for shadow lenders who operate outside the purview of federal regulations is growing as new types of private lenders step in to lend to risky borrowers. The low rate environment has also made investors thirsty for higher returns.

“Low interest rates can mask a lot of bad things and I think that subprime is one of them,” he said.

“Subprime in Canada is not even close to what it was in the U.S. in 2006, but it is growing, suggesting that people who should maybe not be in the market are in the market.”

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And, he warned, subprime borrowers’ debt loads will continue to grow as long as interest rates are low.

“If we continue at this rate, for another five years, we will wake up one morning and see that subprime borrowers are more than 10 per cent of the market and we don’t want that.”