How To Return A Car You Can’t Afford

How To Return A Car You Can’t Afford

Written by Lisa Rennie
Fact-checked by Caitlin Wood
Last Updated August 11, 2022

Buying a car is probably one of the biggest and most expensive expenditures you’ll ever make. But what happens if you buy a car and quickly realize it’s not something you can afford? Or what if the car isn’t what you expected, or it’s a total lemon? Can you return it?

Let’s get into more detail about how to return a car you can’t afford or no longer want. 

Can You Return A Car Back To The Dealer In Canada? 

While you might have an easy time returning a sweater or purse, such is not the case with a car. If you just bought a car from a dealership, the odds are you won’t be able to take it back for a refund. In fact, most lenders don’t accept returns at all.

Why Don’t Lenders Accept Car Returns? 

The moment you drive the car off the lot — especially if it’s brand new — it loses its value to some degree. By accepting a return, the dealer would be taking a loss, which is why they usually don’t do it. 

Are There Exceptions?

There may be some exceptions in which the dealer may accept a return, though it depends on the specific dealer and their policies. 

  • For instance, if you weren’t able to take the vehicle out for a test drive before agreeing to buy it and you purchased it on finance, there may be a chance that you can return it. 
  • If you financed the vehicle and have quickly discovered that you won’t be able to comfortably cover the loan payments, the lender may agree to take the vehicle back.

But this is uncommon, and many dealers and lenders don’t offer it. In fact, as mentioned, most don’t accept returns at all. If you have a quick change of heart, you’ll either be out of luck or you’ll have to make arrangements to sell it. 

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Can You Return A Car Back To The Dealer If You’re Having Financial Problems? 

If you’re having financial troubles that are getting in the way of you making timely car loan payments, you may be able to return the car to the lender through voluntary repossession

What Is Voluntary Repossession? 

Repossession is typically involuntary, which means the borrower doesn’t want to lose their asset but is in a position in which the lender has the right to take it back to recoup their losses. With voluntary repossession, on the other hand, you’re voluntarily giving up your vehicle in an effort to avoid more dire consequences, such as bankruptcy. 

How To Return A Car Through Voluntary Repossession? 

If you can’t afford to make your car payments anymore, you can ask your car lender to take back the car. Here you’ll voluntarily hand over the keys and car, which may save you from experiencing the involuntary repossession process. 

Do note, that the repossession may not entirely cover the outstanding loan balance. When the lender takes your car back, they’ll try to sell it to recoup their losses. The money the lender collects from the sale will be deducted from your loan balance. But if it doesn’t quite cover the balance entirely, you’ll still have to pay the difference. 

Will A Voluntary Repossession Affect My Credit? 

Keep in mind that voluntary repossession of your car may still have a negative impact on your credit. A repossession, whether voluntary or not, will still count as a loan default and will be noted on your credit report, which may hurt your credit scores. 

Are There Any Penalties For Returning A Financed Vehicle In Canada?

While returning your car may alleviate your financial burdens, you could be faced with certain drawbacks when you try to return your financed vehicle, such as the following:

  • Damaged Credit – Your credit scores could take a hit if you opt for voluntary repossession or you miss car loan payments.
  • Fees – You may be charged cancellation fees (if your contract includes this clause) if you back out of the agreement before the loan term ends.
  • May Not Cover Entire Loan Balance – You might still owe a balance if the lender cannot sell the vehicle at a price that would cover the entire loan amount you still owe. 

What Should You Do If You Want To Return A Financed Vehicle In Canada?

Your first step is to get in touch with your lender or dealer to see if returning your vehicle is even a possibility. Depending on your exact situation, they may be willing to work with you to come up with an arrangement to help you with your financial issues. 

Lenders may be open to working with you if you’ve lost your job, had your work hours reduced, or can no longer work because of a health issue. In these cases, your lender may suggest an affordable repayment plan that works for both of you. If you’ve been making timely payments up to this point, you may be in a better position to ask for some help.

What Kind Of Financial Assistance Can Your Lender Offer? 

  • The lender may allow you to skip a payment or two and tack these deferred payments onto the end of the loan term to give you some relief for a short period of time. 
  • They may agree to extend the term to give you more time to pay the loan off and reduce the monthly payments. 

These suggestions only make sense if you’re experiencing temporary financial troubles. Otherwise, if your financial woes will be long-lasting, these short-term measures will be of no value. Instead, you may need to voluntarily surrender the car or take steps to sell it. 

Reasons You May Want To Return A Financed Vehicle In Canada

There are several reasons why you might decide to return your car shortly after buying it, including the following:

  • You can’t afford the loan payments
  • You want to avoid vehicle repossession
  • You discover that the vehicle is a lemon
  • You think you overpaid for the vehicle and can get a better price somewhere else
  • You no longer need the vehicle
  • You had a sudden change of heart

Alternatives To Returning Your Financed Vehicle

If your dealer won’t let you return your car, there are other alternatives to consider:

Refinance Your Car Loan 

You may be able to refinance your car loan to help save you money. Refinancing involves taking out a new loan and replacing your old one. The new loan will ideally have a lower interest rate to help make the loan more affordable. 

Or, you could refinance into a loan with a longer term to give you more time to repay the loan and keep your monthly payments lower. Keep in mind, however, that a longer loan term will likely mean you’re paying more in interest overall. 

Trade-In Your Car

Some auto manufacturers will let you trade in your car for a different model. Keep in mind that you may have to pay early termination fees, though they may be rolled into your new car payments. 

Sell Your Car

If your dealer is unwilling to take the car back, consider selling it. The money you make on the sale can be put toward paying off the outstanding loan.

There’s a good chance that you may not be able to get as much for the car as what you paid for it. In this case, you could come up short and may still have a difference to pay on the original car loan you took out. 

Returning Your Financed Vehicle FAQs

Is there a cooling-off period for car loans?

No, there is no such thing as a cooling-off period for cars. Once you buy a vehicle, you probably won’t be able to change your mind shortly after and return it within a certain time period.

Are there any laws on returning lemon cars? 

Although there are no “lemon laws” in Canada, there are some things you can do if you think you may have purchased a defective car, depending on the type of issue you’re experiencing. For instance, you may qualify for the Canadian Motor Vehicle Arbitration Plan (CAMVAP), which can help you settle conflicts with the manufacturer. Otherwise, you can contact your provincial consumer affairs office for assistance if you bought a defective used vehicle from a Canadian dealership.

Can I have someone else take over my car loan payments?

If you can find someone to assume your loan payments and car, you can relieve yourself from the loan obligations. This person would then take over ownership of the car and assume responsibility for the car loan. However, the new owner may first be required to apply for financing with the dealer and undergo a credit check before they assume the loan. 

What is a car repossession? 

If you’re unable to keep up with your loan payments, the dealer will take the vehicle back through repossession. This process traditionally occurs when a borrower defaults on their loan, in which case the lender repossesses the asset collateralizing a loan — usually a car or house — to recoup their losses.

Do I own the car when I finance it? 

If you take out an auto loan to finance the purchase of a vehicle, the car isn’t technically yours until the entire loan is paid off in full. Until then, the lender has the right to place a lien on your car until you’ve fully paid for it. As such, you won’t be able to transfer ownership until the auto loan is paid off.

Final Thoughts

Whether you quickly discover that you can’t afford your car payments or simply had a change of heart, returning your car isn’t easy. That said, it may be possible. Even if your dealer refuses to take it back, there are plenty of alternative options that may be available to you to get your car — and your loan — off your hands. 

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Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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