What Happens If You Can’t Make Your Car Payment?

Canadian drivers spend an average of just over $880 on monthly car loan payments, making it a big expense for many. Given all the other bills that need to be paid, it can be tough to scrape together enough to cover everything. 

For this reason, it’s not uncommon for some Canadians to miss a car lease or finance payment. But doing so can come with repercussions. So, what happens if you can’t make your car payment?

Key Points

• Missing a car payment can lead to several issues, including late fees, additional interest, or loan default.
• Car payments are considered late when they’re even one day past due.
• Your credit score may be affected if your lender reports your late car payments to the credit bureaus.
• To avoid missing payments, set up auto-billing or add reminders to your mobile phone. 

What Happens If You Can’t Make Your Car Payment?

If you can’t make your car payment by the due date, there are several things that can happen: 

When Is A Car Payment Considered Late?

Your car loan payment is considered late as soon as the due date passes. If you don’t make your payment by the end of the business day on the billing due date, the lender will consider your payment late.

That said, you may have a grace period (varies by each individual’s contract) to make your payment before any late charges or other penalties are issued. The repercussions for late payments will vary based on how late your car loan payment is. 

What Happens If You Miss Your Car Payment By A Day? 

If you simply forgot to pay your bill by the due date but made up for it within a day or two, this shouldn’t be much of an issue. However, you may still be charged a late payment fee. 

However, a day late car payment usually won’t have an impact on your credit score. Most lenders won’t report the late payment to the credit bureaus until it’s at least 30 days late.

 As such, if you make a payment before the next billing cycle, your credit may not be impacted, but you’ll likely get a call from your lender. 

What Happens If You’re 1-Month Behind On Your Car Payments? 

If your car payment is at least 30 days late, there are a few negative things you can expect to happen:

Your Lender Will Warn You

Lenders don’t want the hassle of dealing with delinquencies. Instead, they’ll likely want to see if the problem can be rectified early on before any further action is required. 

If your payment is 30 days late, your lender will likely reach out to you first to find out why the payment was late. They’ll also inform you of the consequences of having an outstanding payment, as well as what could happen if such behaviour continues in future billing cycles. 

As mentioned, you may be given a grace period within which to make up for your late payment in order to avoid penalties. This is more common if this is your first late payment.

Your Credit Report Will Reflect A Late Payment 

If your car payment is 30 days or more late and your lender reports this missed payment to the credit bureaus, your credit report will be noted accordingly. When this happens, your credit score can be negatively affected. 

You’ll Be Charged Late Fees and Interest

Late payment fees are typical for missed car payments. You may also be charged interest on the outstanding payment until it is repaid. That said, your lender may waive these fees if this is your first offence, and you continue to keep up with future payments.

What Happens If You’re 3 Months Behind On Your Car Payments? 

If the payment due date has long passed and you still haven’t paid it, you could face much more serious consequences, including having your vehicle repossessed. Most lenders will usually wait until a car loan is considered delinquent, which means no payments have been made in at least 60 to 90 days. In this case, the lender may take steps to repossess your car and sell it in order to recoup their losses. 

If this happens to you, you may still have a chance to reinstate your car loan contract by paying the missed payments. Alternatively, you may also have some luck negotiating with your lender to try to get more favourable terms or a longer payment plan that reduces the amount you need to pay each month.

What Happens If You’re 12 Months Behind On Your Car Payments?

If you haven’t made any payments toward your car loan, you’ll likely be considered delinquent on your loan and face the real possibility of having your car repossessed. 

As noted, even payments that are 60 or 90 days late could classify you as delinquent, so 12 months will almost certainly put you in this category. 

Most lenders will not allow a missed payment situation to get this far. Again, you’ll probably wind up having your car repossessed by this point, which can negatively affect your credit. 

What Happens If You Miss Car Loan Payments With Banks?

Missing car loan payments with your bank is never a good idea and is best avoided if possible. Refer to the following chart to find out how each of Canada’s Big 6 Banks may handle missed auto loan payments.

What Can You Do If You Can’t Make Your Car Payment This Month?

If you are unable to meet the due date for your car payment, consider the following options:

Defer Your Car Payment 

Some lenders allow borrowers to push a payment or two out to the end of the loan term. That means you can essentially skip a car loan payment for a month or two if you’re unable to come up with the funds to make your payment on time in a billing cycle.

 If this happens, make sure to contact your lender to notify them, or review your lending agreement. Keep in mind that the payment is still payable by the end of the loan term. Also, the monthly interest may still be due for payment. 

Change The Billing Due Date

Your lender may also be open to changing the due date for payment. If so, you can ask the lender to push the payment due date out a few weeks to give you some time to come up with the funds. 

It should be noted, however, that changing the due date of your car payment could result in more interest paid over the life of the loan.

Refinance Your Car Loan

If you think your financial woes will be long-lasting, consider refinancing your car loan. Refinancing involves taking out a new loan with new terms and a different interest rate to replace your old car loan. 

If you’re able to lower the interest rate with better terms, your new loan could be cheaper. In turn, your monthly car loan payments may be easier to manage. This option might make sense if your credit score and or finances have improved since you initially took out the loan. 

However, refinancing might not make as much sense if your car loan is almost nearing the end of the term or the vehicle isn’t worth much. Refinancing also comes with fees, so you’ll need to do some number-crunching to make sure the fees don’t negate your potential savings by refinancing.

Sell Or Trade In Your Car

If you can’t afford your car loan payments, you may have no other option than to sell it and get yourself something that’s more affordable. Alternatively, you could trade in your car for a cheaper one to keep costs lower.

Voluntarily Surrender Your Car

Instead of waiting until the point that your car is repossessed, consider voluntary repossession. Rather than your lender taking the car back due to delinquency, you can be proactive and hand back the vehicle if you’re unable to afford the car loan payments. 

When you return the car, your lender will sell it to recover part of the loan balance. If the amount they receive from the sale is less than what you still owe on the loan, you are responsible for paying the difference. 

This difference is known as negative equity — when your car is worth less than the remaining balance on your loan. Even though you gave up the car, you are still legally required to pay off the negative equity.

On a further note, remember that voluntary surrender is still considered a loan default, meaning it will be marked on your credit report and could affect your credit scores. 

Can A Missed Car Loan Payment Affect Your Insurance Premiums?

That depends on what province you live in and whether your credit score has been affected. If your car loan payments are well overdue and have been reported to the credit bureaus, your credit score may be impacted. This may indirectly affect your insurance rates. 

Insurance companies may use your credit score to determine your insurance rates. However, this is not permitted in Ontario and Newfoundland. Insurers in these provinces are banned from using credit scores to establish car insurance premiums. 

Further, car insurance in BC and Manitoba is publicly regulated, so these provincial governments in these provinces don’t use credit history as a factor to determine a person’s insurance rate. And in Alberta and Nova Scotia, auto insurance providers must get clients’ consent before pulling their credit reports. 

Learn More: Can Missed Auto Loan Payments Impact My Car Insurance Rate?

Tips For Avoiding Late Car Payment Fees

Late payments often come with late payment charges. To avoid being late on a car payment ever again, consider the following tips:

• Set Up Automatic Payments. Instead of trying to remember when your car payments are due each month, consider setting up automatic payments so you never miss another bill. Just make sure there’s enough money in your account to cover these payments.
• Sign Up For Lender Notifications. Lenders often allow borrowers to set up notifications of upcoming payment due dates via email or text. This will give you the heads up that a payment is due soon.
• Find Out What The Grace Period Is. Many lenders allow borrowers to make up for late payments without a penalty if it has been made within a specific grace period. Find out if your lender offers this and what the grace period is, but don’t rely on these all the time.
• Request A Waiver On The Late Fees. If you typically make timely payments and this is a first-time offense, call the lender and kindly request to have the late fee waived.
• Create a Monthly Budget. Set aside a specific portion of your income for your car payment and other fixed expenses. Prioritizing essential bills and tracking your spending can help ensure you always have enough available to cover your car loan on time.

Additional Reading

How To Lower Your Car Payment In Canada

Is Returning A Financed Vehicle In Canada Possible?

What Is A Good Interest Rate On Car Loan?

Final Thoughts

One missed car payment might not be the end of the world, but an extended period of time without making a payment could put you in trouble. Before you wind up in hot water, take proactive steps about your missed car payment to minimize the repercussions.

Late Car Payment FAQs