Car ownership is expensive, partly because monthly car payments are only one cost of vehicle ownership. Other expenses include gas, parking, maintenance, and insurance. One recent study suggests the average monthly cost of car ownership in Canada is a whopping $1387. When you add this to our increase in cost of living, it’s no surprise that many are having difficulty making their car payments. In this article, we’ll look at how to address the issues affecting your ability to pay, such as whether you can pay your car loan with your credit card and what happens to your car if you can’t manage your payments.
Car Loan Payments
Many people use a loan to buy a vehicle, with the car securing the loan. Your payment is determined by the amount you borrow, your interest rate, and the time you take to repay the loan.
Once you complete all your payments, you own the vehicle. Often, however, problems come up that result in missed payments. Common issues preventing timely loan payments are:
- Not knowing or forgetting when payments are due. You can input your payment date in your calendar as a reminder. Some lenders will send you an auto-reminder a few days before the due date if you ask.
- Payment date doesn’t match paydays. If your payment date doesn’t match your pay date, then it is often late or missed. You can ask your lender to change it to one that works better for you.
- You’re short on cash. Creating a budget and reviewing your expenses will help determine whether your loan is affordable.
- Personal circumstances. Job loss, illness, injury, and divorce can affect your payment ability. Recovering from these types of challenges is difficult but not impossible.
Keeping Your Vehicle ?
Fortunately, several options are available if you have difficulty paying but want to keep your car. You may need your vehicle to drive to work or live in an area with limited public transportation. In which case, you need to find an option that will work for you to help you manage the costs.
Proactive communication with your lender is key when you anticipate being late or missing a loan payment. Collection activity and car repossession cost your lender time and money, so it’s in their best interests if you keep making payments.
Changing your payments or getting payment relief may help you keep your car. Some ways to do this are asking your lender for a grace period, using a credit card to make your car payment, refinancing your loan, or filing a Consumer Proposal.
Ask for a Grace period
A grace period can allow you to pay a few days late. Your lender may allow a payment deferral so you can miss a payment and make up for it at the end of the term. You may incur additional interest charges or fees if your lender extends a grace period.
Another option is to ask to change your payment schedule. If you’re paid bi-weekly, for example, making payments might be easier if the payment comes out the same day you’re paid.
Paying with your credit card
If you have available room on your credit card, you can use it to pay your car loan. To do this, you typically need to take a cash advance from your credit card and deposit it to the account you use for your loan payments. The transfer should be done before the loan payment is due.
However – using your credit card to make a loan payment might seem like a good idea to get you out of a difficult situation but there are downsides in doing this:
- Interest rates on credit cards are usually higher than car loans, so it will cost more.
- You may need that credit card room for other things.
- Using credit to pay credit can be a sign of financial distress. You’ve now added another payment that you may not be able to make.
Refinance your loan
Refinancing can extend the loan term, giving you more time to pay it off and lowering your payments. However, refinancing can cost much more in the long run because of higher interest costs. Additionally, if your credit rating is poor or the value of your vehicle doesn’t support the loan, the lender may not do this.
Consumer Proposal
If your missed payments are due to too much unsecured debt, a Consumer Proposal could be your best solution. Too many debt payments might be straining your budget, making it hard to repay your car loan.
Consumer Proposals let you keep your assets, make one monthly payment to pay off your creditors, and can reduce the amount you owe by up to 80%. Filing a CP will allow you to keep your car with a new payment to help pay off your unsecured debt. You’ll need a Licensed Insolvency Trustee to file a Consumer Proposal. Secured debt such as car loans or mortgages are not included in a proposal. However, it can reduce your other payments so you have the money to make your car payments and keep your vehicle without issues.
Cannot Afford Your Vehicle ?
Your car may be too expensive, leaving you unable to manage your payments. Some ways to deal with your loan if you’re overwhelmed are:
- Trading your car.
- Selling your car.
- Voluntary surrender.
- Allowing your vehicle to be repossessed.
Trading your car
Before trading your car for something with lower payments, it’s crucial to understand its value. Research its worth. Ideally, you want enough for your trade to completely pay off your existing loan.
If you owe more than your car is worth, you’re “upside down”. The dealership will roll the balance of what you owe into your new loan. In this situation, trading your vehicle could put you in a similar or worse position because you’ll have the new loan to pay plus the remainder of the original loan.
Selling your car
You may get more money if you sell your car privately. If you don’t get enough to pay off your existing loan, you’ll be responsible for paying the remaining balance. Before selling your car, find out how much you owe and your vehicle’s value. Decide what you’ll do for transportation if you no longer have a vehicle.
Voluntary surrender
A voluntary surrender is turning your vehicle over to the lender. Some borrowers do this when they can’t trade or sell their car for enough money to repay the loan, but they can no longer manage the payments. A voluntary surrender can be better than waiting for your vehicle to be repossessed because:
- You avoid debt collectors.
- You can return the car on your schedule rather than having it seized.
- The lender doesn’t incur as many costs to pass on to you, like hiring a tow truck.
- You can arrange for alternative transportation.
Surrendering a car, whether voluntary or involuntary will negatively impact your credit score, making it harder to secure future loans.
Vehicle repossession
If you have missed your monthly car payments for 60-90 days or more, your lender may begin the debt collection process to repossess your vehicle. Once they repossess your car, they’ll sell it at auction. The amount they get will pay off your loan. You’ll have to pay any difference between the sale price of your car and the outstanding loan amount.
The lender will add the fees they paid for the vehicle repossession to the amount you owe. These fees may include a tow truck, sheriff’s services, and administration fees. Another issue is that the lender often doesn’t tell you when they’re coming to take your car; they just show up, which can be inconvenient, awkward, and embarrassing. Having your vehicle repossessed will damage your credit score.
Filing for Bankruptcy
Filing for Bankruptcy can be an option if you have more unsecured debt than you can pay. Similar to a Consumer Proposal, a Bankruptcy doesn’t eliminate secured debt like a car loan or mortgage. However, eliminating unsecured debt like credit cards and lines of credit can turn your financial situation around so you can get back on track. Selling certain assets in a bankruptcy may be the best for your financial situation.
Each province allows debtors to keep certain assets when they file for Bankruptcy. Speak to a Licensed Insolvency Trustee to give you the guidance you need for the best debt management solution for your situation.
Debt Management Help
If you’re having a hard time managing your monthly debt payments, help is available. We’ve provided debt solutions for people in difficult situations for over 30 years. Book a free consultation with a Licensed Insolvency Trustee at Allan Marshall and Associates online or by calling 1-888-371-8900. We can help you get back on track and put your debt problems behind you.
