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If you’re planning to buy a new or slightly used car, you may need to take out a loan to make the process more affordable. However, financing a car can get really expensive if you experience a loss of income or reduced work hours. This may lead to missed payments, or you defaulting on your car loan, which could result in your vehicle being repossessed.
So, before you finance a car, make sure to ask questions about your potential payment plan. For instance; how many car payments can you miss before it’s repossessed?
Before you apply for a car loan, get all the information about its conditions, including your lender’s repossession policies.
Lenders won’t normally repossess your car after you missed one payment. Some will charge you a late fee and added interest, others will waive any late penalties if it’s your first infraction. On the other hand, your specific vehicle could feature technology that gives your lender the power to disable it remotely following a single missed payment.
Every creditor has different policies but most will consider repossessing your car after you miss 2 or 3 payments (about 60 to 90 days worth). That said, some lenders will repossess your car within a few weeks or days, especially if they think you’re at more risk of defaulting because you have a bad credit score or spotty payment history.
If you miss 2 – 4 payments and don’t make other arrangements with your lender, they’ll most likely repossess your car and report the incident to Equifax and/or TransUnion, which may damage your credit. Remember, that situation will only get more expensive and problematic if you avoid the lender’s repo personnel or attempts to contact you.
Canadian vehicle repossession laws vary by province/territory. However, if you fail to pay your car loan on time, there are two main kinds of repossessions that can occur:
This happens when you miss enough car payments but refuse to work with your lender to reach a solution. This is the priciest way to go through a car repossession because they’ll usually charge you for costs like towing, bailiff fees and refurbishment, on top of your initial debt. In some areas, a lender can also sue you over the loan balance remaining after selling the car.
The lender then reports your bad car loan to our credit bureaus (Equifax/TransUnion), which can change your credit rating to ‘R8’. If you don’t work out a payment plan with the lender soon, that rating drops to ‘R9’ (for debts that are delinquent, sold or transferred).
To avoid the extra costs and credit harm that happen after involuntary repossession, it’s safer to give your car back and pay your outstanding balance willingly. If you return the car and figure out a new payment plan, it could save you a lot of money and keep your credit rating at ‘R8’ until your balance is paid (after which it should slowly improve).
You could be subject to different vehicle repossession laws based on your province or territory. For example, Ontario has the “seize and sue” law, which allows a lender to sue you over your deficiency balance after an auction. In provinces like Alberta and British Columbia, they have the choice to do this or repossess the car.
If it comes to voluntary repossession, you can bring the car to your lender (the cheapest option) or have it towed for a fee. If not, the lender may use any legal means to collect the vehicle, including sending a bailiff and tow truck to your home at their convenience.
Although repo employees can’t enter a private garage or home, they may track the car’s whereabouts, wait until it’s parked in the open, then tow it without warning. This tactic is commonly referred to as ‘skip tracing’ (locating people who try to evade their creditors).
After they’ve repossessed your vehicle, the lender will try to resell it. If they do but the proceeds from the sale don’t cover your entire debt, plus late fees and interest, you’re responsible for the remaining amount, otherwise known as your ‘deficiency’ balance. Be sure to pay this debt as fast as possible to avoid further penalties or harm to your credit.
A car repossession can negatively affect your scores, in fact, there are several because several things can happen to your credit when you miss your car payments, including:
Think your car is in danger of being repossessed? If so, you shouldn’t wait to act. There are several things you can do to avoid a car repossession, such as:
A car loan is a financial responsibility that you shouldn’t apply for on a whim. So, don’t forget to improve your credit, build your savings and create a realistic budget before you sign any agreements. Otherwise, your car could get repossessed, which isn’t good for anybody. Check out Loans Canada for more information about car repossession.
Bryan is a graduate of Dawson College and Concordia University. He has been writing for Loans Canada for five years, covering all things related to personal finance, and aims to pursue the craft of professional writing for many years to come. In his spare time, he maintains a passion for editing, writing screenplays, staying fit, and travelling the world in search of the coolest sights our planet has to offer.
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