Debt Management

How it works and the impact on credit

For many people, owning a car is a necessity—not a luxury—especially if you rely on your vehicle to get to work. But owning a car is not cheap. When you consider car payments, insurance, gas, repairs and regular maintenance, it’s often one of the biggest monthly expenses after your rent or mortgage.

With the rising cost of living in Canada, there is less wiggle room in the budget, making it difficult for many to keep up with car payments. At Credit Canada, we understand that this can be difficult and have seen an increase in calls from Canadians who are repossessing their cars due to financial circumstances.

“Certainly in this era of inflation and people struggling to make ends meet, we’re hearing more about the experiences that people call in and their stories are often heartbreaking. “

Becky Western-McFadyen, Financial Coaching Manager, Credit Canada

Excerpt from an interview with ~ CTV News Toronto.

In addition to the immediate stress of losing your mode of transportation, there’s also the concern of how repossession will affect your credit. Read on to learn how car repossession affects your finances, how to avoid it, and what to do if it happens to you.

Car possession in Canada

Car repossession is a legal process in Canada where a lender takes back possession of a vehicle from a borrower who has failed to repay their loan. This is allowed because a car loan is a secured loan, meaning the lender holds the stake in the vehicle until you pay off the loan in full.

When you take out a loan to buy a car, you sign a financing agreement with the lender. This agreement outlines the terms of the loan, including the repayment schedule. If you miss payments or fail to comply with the terms of the finance agreement, the lender has the right to repossess your vehicle. This is known as an involuntary recapture. Voluntary repossession occurs when the borrower voluntarily returns the vehicle to the lender because he can no longer afford to pay and agrees to surrender the vehicle.

How many missed payments can lead to repossession?

gave Number of missed payments What can lead to involuntary repossession in Canada varies depending on the terms of the loan agreement and the lender’s policies. Generally, lenders consider a borrower to be in default after missing several consecutive payments. However, the specific threshold for repossession may vary, and lenders may also consider factors such as your payment history and communication efforts before initiating a repossession. Below are the main steps for returning a car:

Notice of Default

If you miss several payments, the lender will usually provide you with a notice of default, giving you a chance to catch up on the missed payments.


If you fail to make outstanding payments, the lender can take your vehicle, with or without your consent, according to provincial laws.

Possible sale of the vehicle

Once the lender repossesses your vehicle, they can sell it to pay off the unpaid loan balance. However, you may be responsible for any remaining debt if the sale doesn’t cover it all—including any repossession fees and costs incurred by the lender. In some provinces, the lender must give you notice before selling the vehicle. This notice is your last chance to settle the debt and get your car back.

The effect of car repossession on your credit

A car repossess can cast a heavy shadow on your financial reputation. “The repossession stays on your record for seven years, whether it’s a voluntary or involuntary repossession. If your vehicle is repossessed, it can also make it harder for you to qualify for a car loan in the future. Ga,” Western McFadyen said.

A car repossess can significantly lower your credit score, serving as a red flag to potential lenders who may view you as a high-risk borrower. The number of points your credit score will drop varies depending on your financial situation. Your credit rating—a measure of how well you managed to make payments on that account—will drop to an R-8, which is just one above filing for bankruptcy. This makes it more difficult to secure other loans and forms of credit in the future, such as a mortgage or personal loan. And even if you get approved, you may face higher interest rates or tougher terms.

How to fix your credit after repossession?

If you’ve recently had to deal with a car repossession, we understand that it can feel overwhelming and nerve-wracking to think about how it has affected your credit. However, it’s important to remember that you can rebuild your credit.

To do this, it is important for you to pay at least all your bills by the due dates. Setting up automatic payments or reminders can help ensure you never miss a payment, making it easier to stay on track. Paying your bills on time will help ensure you don’t accumulate more debt and help show lenders that you can handle the debt responsibly.

Kelly O'Leary

“After a repossession, whether voluntary or not, if there is a remaining balance for which the borrower is held responsible after the vehicle is sold. They may apply to our debt consolidation program to help pay off the remaining balance. Contact Credit Canada to inquire about. The best person to “face” the problem is also the best person to “fix” the problem and that’s you!

Kelly O’Leary, Credit Counsellor, Credit Canada

To help rebuild your credit, you may also consider applying for a secured credit card. These cards require a deposit as collateral and are designed for people who want to improve their credit history. By using cards responsibly and making timely payments, you can gradually improve your credit score over time.

In addition, you should obtain a copy of your credit report regularly and review it carefully. Look for any errors or mistakes that are negatively impacting your credit score. If you find any discrepancies, file a dispute with the credit bureau to correct them.

Remember to be patient and persistent when it comes to improving your credit. Rebuilding credit takes time, and there are no quick fixes. But by staying committed to your financial goals and sticking to a repayment plan, your credit can recover from the negative effects of car repossession.

A new call to action

How to Avoid Repossession

If you’re having trouble making your automatic payments, there are some proactive steps you can take to prevent your car from being repossessed, such as:

  • Talk to your lender. As soon as you realize a payment is missing. Notifying them in advance can help find potential solutions, and avoid more serious consequences down the line.
  • Explore other options such as loan modification or forbearance., which can provide a temporary adjustment to your payment terms to reduce immediate financial stress to prevent your vehicle from being repossessed. This may mean extending the loan term, lowering the interest rate, adjusting the monthly payment amount, or temporarily suspending payments for a set period of time.
  • Review your budget. So you can set aside more funds for your car payment. Scrutinize your spending to identify areas where you can cut unnecessary spending and redirect it to essential payments. There are many online budgeting tools and apps that can help with this, including Credit Canada’s free Budget Planner.

What to do if your car is repossessed

If your car is repossessed, it’s important to know what could happen if you don’t take action. If you don’t repossess your car, the lender can sell it to cover the money you owe. However, if the sale doesn’t bring in enough money to pay off your loan, you’ll face a deficiency in the balance.

While repossession laws may vary from province to province, it’s important to know that vehicle owners have legal rights to ensure a fair repossession process. These include receiving notice before it occurs, the right to peaceful repossession without force or threat, and the opportunity to retrieve personal belongings from the vehicle. If problems arise, owners have the right to dispute repossession through legal means.

Can I get my car back after repossession?

If your vehicle has been repossessed in Canada, you may wonder if there is any chance of getting it back. The likelihood depends largely on provincial laws and the specific circumstances of your return. But for the most part, it’s highly unlikely.

In some cases, you may have the option to redeem your car by paying off the outstanding loan and related fees within a certain period of time. The amount of time you have to do this varies, but usually ranges from a few days to a few weeks. However, it is assumed that securing the required funds by the deadline will be a challenge, given that your vehicle was repossessed for non-payment in the first place.

Resources and support: Getting back on track

Losing your car to repossession can feel like a setback, but it’s not the end of the road. If you’re in this situation and your credit suffers, there are steps you can take to start rebuilding a positive credit history over time. Be sure to pay the minimum amount on all your debts by the due dates and consider applying for a secured credit card to help improve your credit. It’s also important to regularly obtain a copy of your credit report and dispute any errors to ensure your credit history accurately reflects your financial situation.

We understand that repossessing your car means you’re also struggling to pay other bills. Whether you’re looking for debt management advice or improving your credit score, we can help you navigate financial challenges. Contact Credit Canada and book a free credit counseling session with one of our certified not-for-profit counselors. Call 1-800-267-2272 to get started today, or talk to us on live chat for a free consultation.

Man is smiling and chatting with a credit counselor on his phone.

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