Buying a car is likely one of the largest 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? Is returning a financed vehicle in Canada possible?
Let’s get into more detail about how to return a car you can’t afford or no longer want.
Key Points
- Returning a financed vehicle in Canada is not straightforward and usually requires specific strategies to facilitate the process.
- You may choose to refinance your car loan, trade in or sell your car, or move your car loan balance to a low-rate balance transfer credit card if you want to relieve yourself of your car loan.
- In a more dire financial situation, you may consider voluntary repossession, which involves willingly giving the car back to the lender, though your credit score will take a hit.
Is Returning A Financed Vehicle In Canada Possible?
While you might easily return 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 some of its value. By accepting a return, the dealer would be taking a loss, which is why they usually don’t do it.
Are There Exceptions To Returning A Financed Vehicle In Canada?
There may be some exceptions in which the dealer may accept a return, though it depends on the specific dealer and their policies. Dealerships have their own policies when it comes to cancelling purchase agreements. While most don’t accept returns, others may be fine with returning a deposit to a consumer, or cancelling the agreement but only refunding part of the purchase price.
Another exception is online used car retailers like Clutch. With Clutch, you can try or test drive your car for 10 days. If you don’t like it or find some problem with it, you can return it for a full refund without penalty, as long as it meets specific conditions.
Is Returning A Financed Vehicle In Canada Possible If You’re Having Financial Problems?
If you’re having financial troubles that are getting in the way of making timely car loan payments, you may be able to return the car to the lender through voluntary repossession.
Returning A Financed Vehicle In Canada: Voluntary Repossession
Repossession is typically involuntary, which means the borrower doesn’t want to lose their asset but is in a position where 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?
To return your car through voluntary repossession, contact your lender to inform them about your inability to make your loan payments. Then, you can arrange a time and place to return the vehicle. This can help you avoid the potential fees that come with involuntary repossession, though your credit score will still be affected.
You should also understand that you may still be on the hook for covering the difference between what you still owe on the car and what your lender can sell it for.
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.
Learn more: What Is Voluntary Car Repossession?
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 no longer need the vehicle
- You had a sudden change of heart
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 if you miss car loan payments.
- Fees – You may be charged cancellation fees 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 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?
Your lender may offer you one of the following options:
- Skip A Payment – Your 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.
- Term Extension – Your lender 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.
Alternatives To Returning Your Financed Vehicle
If your dealer won’t let you return your car, or you want to avoid voluntary repossession and the potential credit implications that come with it, there are other alternatives to consider:
Trade In Your Car
Some auto manufacturers will let you trade in your car for a different model, ideally one with a lower ticket price. In this case, the dealership pays off your current car loan and puts the remaining balance towards a new car loan.
Keep in mind that you may have to pay early termination fees on your existing car loan.
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.
However, there’s always a 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.
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. This will give you more time to repay the loan and keep your monthly payments lower. However, a longer loan term means you’re paying more in interest because it’s taking you longer to pay off the debt.
Speak with a Loans Canada representative today and learn how you can refinance your car loan and save. Call us today at 1-877-995-6269 or click here.
Note: Program is currently not offered in Quebec.
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How Does Getting Out Of Your Car Loan Affect Your Credit?
Your credit score may or may not be affected when you try to get out of your car loan, depending on your chosen method. The following chart outlines how your credit score may be affected based on the methods listed above to get out of a car loan:
| Option | Effect On Credit |
| Voluntary Repossession | Credit will be negatively affected |
| Refinancing | Credit may be temporarily affected due to credit check |
| Trading In Your Car | Credit may be temporarily affected due to credit check if you take out a new car loan |
| Selling Your Car | No effect on credit |
| Balance Transfer | Credit may be temporarily affected due to credit check when you apply for a balance transfer credit card |
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, some alternative options may be available to you to get your car — and your loan — off your hands.
