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As the Bank of Canada works to curb inflation and consumer spending by hiking interest rates, Canadians are falling behind on their auto loan payments. 

According to the latest Equifax credit trends and insights report, “auto loans opened since late 2021 have higher than expected delinquency levels after six months, but overall, the financial stress is visible as delinquencies are fast approaching pre-pandemic levels.”

Due to low inventory levels and excess demand, the cost of new vehicles continues to rise steadily. The average car loan interest rates are around 5% to 6%. Using an interest rate of 5%, the average car payment amount in Canada is $491.48/month for a five-year loan.

To avoid the risk of losing your vehicle, it’s important to stay up to date with loan payments. However, with rising inflation and people struggling to make ends meet, what happens if you miss one or more auto loan payments? And can doing so affect your car insurance rate as well?

What Happens If You Miss An Auto Loan Payment?

Depending on how late your payment has been, how frequently you miss payments, and the severity of the default, the consequences differ. 

If it’s the first time or a lone incident of missing an auto loan payment, some lenders may give you a few days to make the payment. Others may charge you a late payment fee. If you don’t make the payment within 30 days, the loan could go into arrears and the lender may charge extra interest on the outstanding amount. 

If you don’t pay within 90 days and if there have been multiple missed payments, the car will be deemed delinquent, and the lender will start legal proceedings. Most lenders will repossess your car and it will be auctioned off. The proceeds from the sale will be used to pay for your car loan. 

Additionally, a missed loan payment will also affect your credit score, and remain on your credit report for up to six years. 

Will Missed Auto Loan Payments Impact Your Car Insurance Rate? 

In addition to late fees and the impact on your credit score, the other thing to consider is auto insurance. If your car insurance company can cancel your policy for non-payment of premiums, will missed payments on your car loan affect your insurance?

“Not making car loan payments doesn’t impact your insurance in Ontario, as credit isn’t a factor in determining rates,” says Tanisha Kishan, RATESDOTCA insurance expert.

Insurance companies in Ontario and Newfoundland and Labrador are banned from using credit scores to determine premiums, while companies in British Columbia and Manitoba can access consumer credit. However, auto insurance in B.C. and Manitoba is publicly regulated, and the governments in these provinces don’t use credit history as a factor to determine a person’s insurance rate. 

In Alberta and Nova Scotia, car insurance companies must get clients’ consent before accessing their credit history. 

“That said, if a client is missing payments on their car, they could be missing payments on their insurance, too,” says Kishan. “If that’s the case, they could have their insurance cancelled for non-payment, which results in increased costs and limits payment options available to the consumer.”

What Happens If You Miss Auto Insurance Policy Payments? 

You might think that missing your monthly car insurance payments is like missing a phone bill. However, non-payment on your insurance policy is an offence that insurance companies take seriously.

Missing a policy payment stays on your record for three years, and you’re likely to see a higher premium when renewing your policy, or when getting insurance from a new provider. If you frequently miss payments, your auto policy can be cancelled altogether. Again, you’ll likely see a higher premium when trying to obtain insurance from a new provider or, depending on your record, find it difficult to get car insurance coverage at all.

To avoid the risk of missed auto loan or insurance policy payments, stay on top of your car payments and reconsider your coverage needs. If you find yourself without coverage due to non-payment, comparing car insurance rates from different insurance companies can help. Even though you’ll likely pay more than you were before, you’ll still ensure you’re getting the lowest rate from providers willing to insure you.

Shaistha Khan avatar on Loans Canada
Shaistha Khan

Shaistha is an editor/writer in the personal finance space, where she reports on topics such as mortgages, insurance, and credit cards.

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