How it works and its effect on credit

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

With the high cost of living in Canada, there is less wiggle room in budgets, making it difficult for many to keep up with car payments. At Credit Canada, we understand this can be daunting and we have been receiving an increasing number of calls from Canadians who have had their cars repossessed due to their financial situations.

“Certainly during this time of inflation and people struggling to make ends meet, we are hearing more about these experiences with people contacting us and their stories are often heartbreaking.”

Becky Western Macfadyen, Director of Financial Training, Credit Canada

~ Excerpt from an interview with CTV News Toronto.

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

Reclaiming car ownership in Canada

Car repossession is a legal process in Canada where a lender repossesses a car from a borrower who has failed to make loan payments. This is allowed because the car loan is a secured loan, which means the lender retains a stake in the car until you repay the loan amount in full.

When you get a car loan, you sign a financing agreement with the lender. This agreement specifies the terms of the loan, including the repayment schedule. If you miss payments or fail to adhere to the terms of the financing agreement, the lender has the right to repossess your car. This is known as an involuntary repossession. A voluntary repossession occurs when a borrower voluntarily returns the vehicle to the lender because he or she can no longer make the payment and agrees to surrender the vehicle.

How many missed payments can result in a repossession?

the 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. Typically, lenders consider a borrower to be in default after missing several consecutive payments. However, the exact minimum repossession can vary, and lenders may also consider factors such as payment history and communication efforts before initiating a repossession. Here are the main stages of car repossession:

The effect of car repossession on your credit

A car repossession can take a toll on your financial reputation. “A repossession will stay on your record for seven years, whether it’s a voluntary or involuntary repossession. If your car is repossessed, it will also make it harder for you to qualify for a car loan in the future,” Western-McFadden said.

A car repossession 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 — an assessment of how you’ve managed payments on that account — will drop to R-8, a rating above the bankruptcy level. This makes it more difficult to obtain loans and other forms of credit in the future, such as a mortgage or personal loans. Even if you get approved, you may face higher interest rates or stricter terms.

How to repair your credit after a repossession?

If you’ve recently had to deal with a car repossession, we understand that it can be stressful and nerve-wracking to think about what you’ve done for yourself. However, it’s important to remember that you can rebuild your credit.

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

“After a repossession, whether voluntary or not, if there is a remaining balance the borrower is responsible for it after the vehicle is sold. They can contact Credit Canada to inquire about our debt consolidation program to help pay the remaining balance. The best person to ‘face’ the problem is also the best Someone to “fix” the problem and it’s you!

Kelly O’Leary, Credit Advisor, Credit Bank Canada

To help rebuild your credit, you can also consider applying for a secured credit card. These cards require a security deposit and are designed for those looking to improve their credit history. By using the card responsibly and making timely payments, you can gradually improve your credit score over time.

In addition, you should regularly obtain a copy of your credit report and review it carefully. Look for any errors or inaccurate information that could negatively impact your credit score. If you notice 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 sticking to your financial goals and sticking to a repayment plan, your credit can recover from the negative impact of a car repossession.

How to avoid possession

If you’re struggling to make your car payments, there are some proactive steps you can take to help prevent your car from being repossessed, such as:

• Communicate with your lender Once a payment is expected to be lost. Notifying them in advance allows potential solutions to be explored, and can avoid more serious consequences in the future.
• Explore other options like loan modification or forbearance, which can provide temporary adjustments to your payment terms to relieve immediate financial stress while ensuring your car is not taken away. This could mean extending the term of the loan, lowering the interest rate, adjusting the monthly payment amount, or temporarily suspending payments for a specified period.
• Reconsider your budget So you can set aside more money for your car payments. Examine your expenses closely to identify areas where you can cut unnecessary spending and redirect it toward 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 what you owe. However, if the sale doesn’t bring in enough money to pay off your debt, you’ll be on the hook for the deficiency balance.

While repossession laws can vary in each county, it is important to know that car owners have legal rights to ensure a fair repossession process. These include receiving notification before it happens, the right to recover property peacefully without the use of force or intimidation, and the opportunity to recover personal belongings from the vehicle. If problems arise, owners have the right to object to repossession through legal means.

Can I get my car back after repossession?

If your car is repossessed in Canada, you may wonder if there is any chance of getting it back. The possibility depends largely on the county’s laws and the specific circumstances of repossessing your property. But for the most part, it’s highly unlikely.

In some cases, you may have the option to repossess your vehicle by paying off the outstanding debt and any associated fees within a specified time frame. The amount of time you have to do this varies, but usually ranges from a few days to a few weeks. However, securing the required funds by the deadline will presumably be a challenge, given that your car was repossessed due to missed payments in the first place.

Resources and Support: Getting back on track

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

We understand that repossessing your car means you’ll likely have difficulty paying other bills as well. Whether you’re looking for debt management advice or want to improve your credit score, we can help you overcome financial challenges. Contact Credit Canada and book a free credit counseling session with one of our certified non-profit counselors. Call 1-800-267-2272 to get started today, or talk to us via live chat for a free consultation.