Don’t Pay Your Bills on Time? Your Car Could Get Repossessed
Have you taken out an auto loan on your vehicle but are behind on the payments? Is your auto lender constantly bugging you about bills past due, your auto loan contract – and the fact that you’re breaching it – or that you’ve been unable to keep up with payments? Well, in that case….
This Could Happen to You
According to Ontario law, if you’re behind on the payments of your car loan or lease, the lender has the legal authority to repossess the vehicle, and even sell it to recover the amount they are owed. In the event that there’s still a balance on the car after it’s sold, the lender could even sue you, and potentially garnish your wages. To make matters worse, the money you’ve put into the car at this point will be essentially lost forever, that is, if you don’t speak to the lender first and make payment arrangements that suits them.
If not, the lender will take it to auction, where they sell it as quickly as possible (as cars depreciate by the day). After it’s sold, the funds collected from the sale go towards paying off the balance on the vehicle (called a lien). However, due to several factors, creditors rarely receive enough money from the sale to pay off the balance owing on the lien. And, despite the fact you are no longer en route to owning this vehicle, you will still be responsible for this balance, and it is fully in your creditor’s legal rights to pursue you for it. This, of course, also negatively and significantly alters your credit score.
For many of us hard-working, bill-paying Canadians, this is a scenario that’s become all too familiar. All it takes is a loss of a job, hardship, illness, emergency, or death in the family, and suddenly you’re forced to spend the money you usually put towards paying off your auto loan on something else. Months pass by, and despite your efforts, you’ve found yourself behind on your bill payments.
You can, at least, take comfort in the fact that repossessing your car is literally the last resort for car lenders, and usually entails that they take a financial loss (part of the reason why you pay interest on your loan). Most car lenders don’t want to go through the hassle of hiring a bailiff, seizing your car, selling it, and suing you. Instead, they’d just prefer that you pay the amount owned on the car, and call it a day. If you can’t do that, simply due to a lack of funds, car lenders can be understanding IF you maintain a dialogue and work on arranging a payment schedule, where you guarantee when they can expect to receive the amount owing on the vehicle.If you can’t make such a guarantee, there’s a pretty good chance you will lose the vehicle. If so, you could file for bankruptcy in Ontario, or file for a consumer proposal. This will immediately stop the creditor from being able to garnish your wages, though they would still be able to repossess your car.
Furthermore, many auto loan companies are installing what is known as a starter interrupter (a GPS-equipped black box) into the vehicles of borrowers with bad credit. If a borrower stops making payments, lenders can send a signal to the box, which turns it on and disables the vehicle by shutting off the starter. This makes it easy for lenders to repossess vehicles from borrowers who are behind on paying their bills.
If you can avoid it, do everything you can to ensure your car isn’t repossessed. Not only does it damage your credit but it also damages your quality of life, and is very stressful. At least we’re in Ontario though, and not Florida, for example, where yesterday a car dealership repossessed a car that had a nine-month-old baby in it. To top it off, doing so was completely in their legal rights, and they weren’t even charged (the baby was quickly returned to her mother, at least).
Two Types of Auto Loan Repossessions
There are two types of auto loan repos: involuntary, and voluntary.
This is known as the standard repossession, entailing that the debtor has either been struggling with paying his/her car payments on time, or has flat out refused to do so. This eventually leaves the lender with no other option than to hire a bailiff to repossess the vehicle.
As expected, this category is for consumers who are aware that they won’t be able to pay off their auto loan, and willfully surrender their car. While this doesn’t change the amount owing on it, or the harm it will inflict to their credit score, it does however lead to a discussion between the lender and borrower, where they may be able to work out a payment plan. This also saves you, the borrower, from spending on extra expenses such as the creditor hiring a bailiff to collect the vehicle.
It is mandatory for you to remember as a borrower that taking an auto loan comes with certain legal responsibilities. If you can predict that paying your bills on time will be a nearly impossible endeavour, do everything in your power to create some sort of payment schedule, or find any other alternative to repossession, as it severely damages your credit score, and potentially loses you the money you’ve put into the vehicle thus far.
Recovering from Repossession
If your car has been repossessed, then your credit score has been damaged – no other way around it. After the repo, your credit bureau will update your history, which is available to all lenders across the country. At this point, there’s nothing else you can do but begin working on reestablishing your credit, and bringing your score back to par.
While this no easy task, it is manageable. Ironically, the best method for you to get your credit back on track is by taking out another auto loan. While banks and most dealerships will oft refuse you service due to your credit history, there ARE auto loan specialists like Auto Loan Solutions that will still be able to have you pre-approved for a loan, and get you in the car that suits your financial needs.
At Auto Loan Solutions, we understand that everyone deserves a second chance. That’s why we work round the clock to make sure our customers get approved for the auto loan, and vehicle, that will help re-establish their credit rating. Taking an auto loan post-repo is your first step towards financial freedom; by paying it back on time, and responsibly, you prove to lenders that you can indeed be trusted, and strengthens your credit score. If you maintain these good credit-building habits, you’ll be eligible for the best interest rates and types of loans, and more lenders, banks and dealerships will want to do business with you.
So don’t let that one-time car reposession get you down. By taking a loan with Auto Loan Solutions, and by proving yourself as a borrower, you’re on your way to a great credit score.