At Risk of Defaulting on a Car Loan? Here's what to do

At Risk of Defaulting on a Car Loan? Here's what to do

Posted on August 31, 2021

If you’re struggling to make your auto loan payments or have come up against a situation that will make staying on top of things difficult, you’re not alone. While it doesn’t make it any better, thousands of Canadians are also struggling with debt. Our Freelton auto loans team have three pieces of advice for anyone facing imminently defaulting on a car loan. We hope you find it useful.

Defaulting on a Car Loan

Defaulting on an auto loan means missing a payment for an entire payment period.

If you’re a day or so late and pay up immediately, most lenders won’t report it as a missed or late payment. If you’re a week or so late, it may be recorded as a late payment on your credit report.

Miss a payment for an entire billing period, usually 28 days, and you’ll be in default. The majority of lenders will make this on your credit report as a default and that’s not a good thing.

There are three things you can do beforehand to prevent that though.

Create a budget and see if you can avoid defaulting

Your first action if you know your situation is about to change is to see what else about your situation you can change.

In this example, we would recommend putting together a household budget. Income in one column, all outgoings in another and all debt in a third. Make it as accurate as possible so you have the clearest picture possible.

Look at all your outgoings and see what you can save to weather the storm and work your way through whatever situation you’re facing.

Sometimes you can survive by making cutbacks in outgoings. Sometimes that just won’t be possible. If it’s the latter, at least you know for sure.

Discuss is with your lender

Lenders are in business to make a profit but they also realize that they are better off working with borrowers to come to an arrangement than hanging them out to dry.

Call your lender to discuss the situation before you miss a payment. Do it beforehand and you’re a concerned customer trying to do the right thing. Lenders are much more willing to help out in this situation.

Miss a payment and you’re a defaulter and lenders tend to view those very differently!

Refinance or pay off the loan

You’re going to have to pay the loan off at some point so you may as well do it while you’re in control.

Depending on what your lender says and the situation you’re facing, you could refinance the loan or sell the car to pay it off.

Neither of these are ideal but they keep you in control of your situation, help prevent a serious hit to your credit score and having missed payments on your credit history for the next several years.

Refinancing may be viable if you’re facing a shortfall in income and have equity in the car.

Selling the car to a dealership is more useful if you simply won’t be able to afford to make payments.

Contact Unique Chrysler for help, advice and competitive Freelton car finance and leasing.

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