Mounting debt is becoming a real issue in Canada, with the average Canadian consumer carrying $21,131 in non-mortgage debt. That’s a hefty load that can take years to pay down, especially if much of it comes with a high-interest rate. And car loans typically make up a large portion of this debt.
The higher the debt load, the higher the chances of being unable to make payments on time and in full each month. Failure to make such payment obligations can result in serious financial consequences. In the case of an auto loan, Canadians can be faced with repossession of the vehicle they’ve been struggling to pay off.
If you’re ever faced with repossession, is it possible to get another car loan?
Key Points
- If you miss your car loan payments, you will eventually be considered in default.
- Your lender can repossess your car if you default on your car loan.
- Car repossession can hurt your credit and make it more difficult to get another car loan
- You can increase your chances of getting a car loan after repossession by saving for a large down payment, using a cosigner, and choosing a more affordable car.
Can You Get A Car Loan After Repossession?
Generally speaking, a person who has a repossession note on their credit report will have a tougher time securing another car loan – or any other type of loan for that matter – because lenders will consider them to be high-risk borrowers. That said, there are ways for you to improve your financial health and eventually be able to get approved for another car loan in the future.
Learn more: Car Loans In Canada
Where Can I Get A Car Loan After Repossession?
You can get a car loan after repossession from several sources:
- Online Lenders: Many online lenders cater to consumers with bad credit and use other criteria, like income and assets, to determine whether to offer a car loan.
- Dealership Financing: Some car dealerships are partnered with lenders who provide financing for consumers with a repossession on their record.
- Credit Unions: Some credit unions may offer more flexible lending criteria and may be more open to work borrowers with a history of car repossession if you have a good relationship with them.
- Banks: If you want to apply for a car loan with a bank, you’ll likely need to wait until your credit score has improved significantly, as these traditional lenders typically work with consumers with good credit.
Best Car Loans In Canada
| Amount | Interest | Term (Months) | ||
|---|---|---|---|---|
 | $500 - $50,000 | Up to 35% | 12 - 84 | Learn more |
 | $7,500+ | Varies | 24 - 96 | Learn more |
 | $500 - $35,000 | Starting at 29.99% | 9 - 60 | Learn more |
 | $500 - $10,000 | 12.99% - 34.99% | 9 - 60 | Learn more |
 | $5,000 - $40,000 | Varies | 12 - 72 | Learn more |
 | $5,000 - $45,000 | 4.90 % - 29.95% | 36 - 72 | Learn more |
 | Varies | 11.9% + | 12 - 84 | Learn more |
 | Up to $50,000 | Varies | 12 - 84 | Learn more |
How To Secure An Auto Loan After Repossession
While repossession can have a negative impact on your credit and your ability to get approved for another car loan, it’s not impossible. There are things you can do today to help you improve the odds of getting an auto loan, even after dealing with repossession in the past.
Pay Back Any Outstanding Amount On Your Auto Loan
Your credit has already been damaged, but you can avoid any further deductions on your score by paying off whatever you still owe on your car loan. If the resale value of your vehicle is less than what you still owe on it, you will still be expected to pay down the difference.
This is true even if you are no longer considered to be the rightful owner of the car. In order to boost the chances of securing another auto loan, be sure to make it a point of paying back whatever debt you still owe on your car loan in order to ensure your credit score doesn’t take another hit. That said, paying off the balance won’t immediately remove the negative effect of the repossession.
Keep Old Lines Of Credit Open
Old credit is considered good credit, even if you don’t use it. By closing a line of credit, you will be doing nothing more than reducing your overall available credit. This can hurt your credit score, which you certainly don’t want to happen, especially after repossession. So, consider keeping old credit accounts open.
Don’t Open Any New Credit Accounts
Opening new lines of credit increases your debt load, which lenders will look at before deciding whether to approve a loan. Instead, you should do your best to pay down whatever existing debt you currently have, rather than add to the pile. By paying down your current debt regularly, you’ll show lenders that you are capable of being a responsible borrower and will increase your chances of getting another car loan in the future.
Save Up For A Large Down Payment
The more money you’re able to pay upfront for a new vehicle, the better your chances of getting approved for a car loan. A higher down payment means a lower loan amount required, making you less of a risk in the eyes of the lender.
Since you have a repossession on record, you will be perceived by lenders as a higher risk, which could prompt them to reject your loan application. But saving up for a large down payment to be put towards an automobile purchase will show lenders that you are financially responsible and capable of handling another car loan.
Learn more: How Much Should A Down Payment For A Car Be?
Buy A Less Expensive Vehicle
You might have your sights set on a certain brand, but if it’s expensive, you might want to reconsider your choice. With a repossession on record, your odds of securing another car loan in the future have already been hampered. You’ll just be making things more difficult for yourself by attempting to get a car loan for an expensive car.
Instead, go for something more affordable. The less expensive the purchase price, the lower the loan amount required. And the less money you have to borrow, the higher the chances that a lender may agree to lend it to you, even with a repossession on record.
Use A Cosigner
A cosigner is a creditworthy person who agrees to take over loan payments in case the primary borrower defaults on the loan. This can reduce the lender’s risk and increase the chances of loan approval if you have bad credit.
Take Time To Repair Your Credit
If you can go without a car for a little while, you might want to hold off on applying for a car loan so soon after repossession. Repairing your credit after a financial setback like this can take some time. Focus on the steps you need to take to increase your credit score. By doing so, you’ll be in a better and stronger financial position to apply for another car loan, which will increase the odds of approval.
Learn more: How To Improve Your Credit Scores
What Is Repossession?
When you finance or lease a vehicle, your lender holds certain rights while you’re still under contract with them. Once you’ve fully paid off your loan or the lease term ends, your obligations also end there. But while you still owe money, your lender may exercise certain rights if you violate your contract, including failure to make regular payments.
If you consistently fail to make your auto loan payments, the lender who provided you with financing may repossess your car. This simply means that they have the right to take the vehicle back. They can then turn around and sell the vehicle to someone else in order to recoup their losses.
Will Repossession Affect My Credit?
Not only does repossession of your vehicle leave you without a car, it can also make a dent in your credit score.
Repossession can stay on your credit report for as long as seven years. During that time, a note on your credit report specifying your previous repossession will alert any future lenders about your financial past, which could have a negative influence on creditors’ perception of your financial health.
Your credit score plays a key role in your ability to get a loan, secure a mortgage, and even get an apartment. Considering how important your credit score is, it’s best that you take steps to lessen the blow of repossession on your credit score.
Final Thoughts
Repossession is certainly not a pleasant experience, and it can have serious consequences on your credit score and your ability to get another car loan. But securing another auto loan in the future isn’t impossible. By taking the necessary steps needed to repair your credit following repossession, another car loan can be in your future.
