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Returning a Financed Car in Canada

Can You Return a Financed Car in Canada?

Mike was thrilled when he drove his brand new SUV off the lot. After years of dreaming, he finally owned his perfect vehicle. The monthly payments stretched his budget, but he figured he could make it work.


A few months went by and Mike received an unexpected medical bill that threw his finances off track. Between the car payment and new medical expenses, he was drowning in debt. Mike decided his only option was to return the financed SUV to the dealer and get out from under the loan.


When he contacted the dealership, they informed him that returns were not allowed. The SUV legally belonged to Mike now. His only choice was to voluntarily surrender it to the financing company. Mike turned in the vehicle, but his credit took a massive hit that would haunt him for years to come.

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What Happens When You Try to Return a Financed Car

Most dealerships have no obligation to take back a financed vehicle. Once you sign the contract and drive it off the lot, the car legally belongs to you. The purchase agreement you signed will likely have no provisions allowing you to simply return the car.

Some dealers may allow returns within a few days under a limited return policy. This grace period, if offered, allows you to bring back the car if you have buyer’s remorse or find issues within the first week or so. But strict conditions apply, and you’ll likely lose any down payment or trade-in value.

Beyond that small window, your only option is voluntary repossession (voluntary surrender). This involves voluntarily giving the financed car back to the lender when you can no longer afford payments. You call the lender and arrange to return the vehicle. The lender then sells the vehicle to recoup losses.

 

Consequences of Returning a Financed Car

While voluntarily surrendering your financed vehicle may seem like an easy way out, this drastic move can have serious long-term impacts on your financial health.

The most immediate consequence is the major hit your credit score will take. Expect your credit score to drop by 100 points or more when you voluntarily repossess a financed car. This is because lenders view voluntary repossession as an extremely negative mark on your credit history.

A 100+ point drop in your credit score can have significant ripple effects. Your damaged credit will make it much harder to get approved for loans and credit cards. Interest rates will be higher when you do qualify. Landlords may deny your rental application due to the repossession on your report. Insurance premiums could also increase.

In short, voluntarily returning a financed car triggers a long period of financial difficulty. This one event can negatively impact your finances for the next 7 years while it remains on your credit history.

 

Loss of Down Payment and Other Costs

When you return a financed vehicle, you lose any money you put down upfront. The down payment, which can be thousands of dollars, is intended to lower the amount you need to borrow. But since you no longer have the vehicle, you don’t get that money back.

In addition to the down payment, any other sunk costs associated with the purchase are forfeited. This includes taxes, registration fees, dealer fees, extended warranties, and any aftermarket accessories or upgrades you paid for.

With a financed car, the lender holds the title until you pay off the loan. So even if you invested significantly in customizing the vehicle, you won’t recover any of that investment if you voluntarily return it. The lender takes possession of the car in the condition you give it back.

The money lost in the down payment and other sunk costs can total thousands of dollars. And once you return the financed car, you have nothing to show for all that money spent. This represents a major financial hit on top of the damage to your credit.

 

7 Years of Credit Damage

One of the most serious long-term consequences of voluntarily surrendering your financed vehicle is the damage it will do to your credit history. When you return a financed car, the lender reports it to the credit bureaus as a voluntary repossession.

This negative mark will stay on your credit report for a full 7 years. During this time, it will be extremely difficult to get approved for any type of credit or financing. Lenders will see the voluntary repossession as a sign you are an unreliable borrower and high risk.

Your credit score could plummet by 100 points or more. With a poor credit score, you’ll end up paying sky-high interest rates for years on any credit you can get approved for. Everything from credit cards to mortgages will be much more expensive.

Financing a replacement vehicle in the future will also be very difficult and expensive. Most lenders will not want to assume the risk after you voluntarily repossessed. Expect to pay double digit interest rates if you do find a lender willing to finance you.

Before returning your financed car, think carefully about if 7+ years of credit damage is worth it. This long-term fallout can impact every area of your financial life.

 

Higher Interest Rates

One of the biggest long-term impacts of voluntary repossession is higher interest rates on any loans you apply for in the future. Lenders will see the repossession on your credit report and view you as a high-risk borrower. This means you will likely pay much higher interest rates when trying to get approved for financing.

For example, instead of qualifying for a 4% interest rate on an auto loan, you may only be approved at a 10-12% interest rate after a repossession. This can drastically increase the total cost of borrowing by thousands of dollars over the life of a loan. The impact may last for years after the repossession initially occurs.

Higher interest rates also apply to mortgages, credit cards, personal loans and most other lending products. Having a repossession on your credit history signals to lenders that you are unreliable and may have difficulty making payments. Expect to pay more for years after voluntarily surrendering your vehicle.

 

Alternatives to Returning a Financed Car

If at all possible, avoid voluntarily surrendering your vehicle. Instead, exhaust all other options first:

 

Refinance the Loan

One option is to refinance your auto loan. This involves taking out a new loan to pay off your existing one. By extending the repayment term or getting a lower interest rate, you can significantly reduce your monthly payments.

Shop around with banks, credit unions, and online lenders to find the best refinancing offer. Just be sure to carefully compare the costs and terms to make sure refinancing makes sense.

 

Sell the Car Yourself

Instead of returning the car, consider selling it yourself. Use sites like Autotrader, Craigslist, or Facebook Marketplace to advertise the vehicle.

As long as you can sell it for more than what you still owe on the loan, you can pay off the lender and be free of the financed car. This requires finding a private buyer willing to purchase it.

 

Trade it in for a Cheaper Car

Another option is to trade the financed vehicle in when purchasing a less expensive replacement car. The trade-in value helps lower the overall cost of the new vehicle.

This allows you to get a cheaper car with more affordable payments. Just be sure to shop around to get the best possible trade-in value for your current vehicle.

 

Refinancing the Loan

One alternative to returning a financed vehicle is to refinance the existing auto loan. This involves taking out a new loan to pay off the old one. By extending the repayment period or getting a lower interest rate, you may be able to significantly reduce your monthly payments.

With refinancing, you keep the car but change the terms of the loan. Most lenders allow refinancing once you’ve made a year or more of on-time payments. This shows you can handle the responsibility of an auto loan.

To qualify for refinancing, you’ll need a credit score of at least 600. The higher your score, the lower the interest rate you can get. Refinancing works best if you can reduce the rate by at least 2 percentage points.

Online lenders like Bankrate and LendingTree make it easy to compare refinancing offers side-by-side. Look for the lowest rate and monthly payment possible. Crunching the numbers beforehand ensures refinancing achieves your goal of lowering payments on your financed car.

 

Using a Credit Counselor

Another alternative to voluntarily surrendering your financed vehicle is to work with a credit counseling agency. These non-profit organizations can help you manage unsecured debt like credit cards. But they may also be able to help with car loans.

A credit counselor will work with you to thoroughly review your budget and expenses. They can then create a customized debt management plan. This lays out a structured approach to paying down debts through consolidated monthly payments to the agency.

The agency will distribute funds to your creditors, negotiating reduced interest rates and waived fees. For car loans, they may be able to get the lender to lower your monthly payment and interest rate. This can make the vehicle more affordable to hold onto.

A debt management plan through a credit counseling agency provides an intermediary between you and lenders. They have expertise in negotiating debt relief options. This can be an effective route to avoid voluntary repossession and keep your financed car.

 

Ask the Lender for Options

Before returning the financed vehicle, have an open and honest discussion with your lender. Explain that you’re facing financial hardship and can no longer afford the monthly payments. Many lenders have hardship programs in place to help borrowers in difficult situations.

For example, the lender may be able to reduce your interest rate to lower the payment. They may also extend the loan term to reduce the monthly cost. In some cases, the lender can grant a temporary payment deferral or partial payment plan.

If you’ve been a good customer, the lender has an incentive to work with you to modify the loan terms. This allows them to recoup their investment rather than taking back the vehicle. Be proactive in asking for assistance before you get behind on payments.

In addition to hardship programs, some lenders may offer loan extensions or forbearance. This temporarily pauses or reduces your monthly payment for a set period, giving you time to improve your financial situation.

The key is communicating early and asking the lender for any available hardship assistance. They would much rather modify your existing loan than go through the repossession process. Don’t assume there are no options – reach out first.

 

Selling the Car Yourself

If you have equity in the vehicle and a way to sell it on your own, this route lets you pay down a big chunk of the loan. Start by researching the current market value for your make, model, year, mileage etc. Sites like Kelley Blue Book (KBB) can provide pricing estimates.

Next, thoroughly clean and detail the vehicle, take professional photos, and create online listings for a quick sale. Be sure to disclose any existing damage or issues. You may need to price it slightly below market value for a faster sale.

Once you secure a buyer, collect payment from them and immediately put it towards your loan principal. This lowers your balance so the monthly payments become more manageable. Any positive equity left over after paying the loan down can go towards your next vehicle purchase.

Selling privately takes more effort but lets you tap into the car’s value. This prevents a lender from profiting on a resale while you’re still stuck with a big loan balance.

 

Trading it in

Another alternative to returning a financed car is to trade it in for a cheaper vehicle with lower monthly payments. This allows you to get out from under the existing loan while acquiring a more affordable set of wheels.

With a trade-in, you bring your current vehicle to a dealership that accepts it as a down payment toward another car on their lot. The dealer will assess your trade, make you an offer, and apply that amount towards the new purchase.

Trading in can lower your payment in a couple ways:

 

  • The trade value reduces the amount you need to finance
  • You can use it to get a less expensive vehicle

Just make sure the numbers make sense. Have both vehicles appraised first to determine the true trade value. Then crunch the new loan amount and payments to confirm it achieves your goal of lowering the burden.

Trading in requires planning, research, and careful calculation. But it lets you exchange your unaffordable ride for one with payments that fit comfortably within your budget.

 

The Takeaway

Returning a financed car should be an absolute last resort. This route involves serious long-term credit damage and financial loss. If you’re struggling with payments, fully investigate alternative options before surrendering your vehicle. Managing the situation properly can save your credit score and prevent years of problems.

Before turning in your keys, exhaust every other possibility first. With some effort, you may be able to refinance, lower your payments, or sell the vehicle yourself. While voluntary repossession seems like the easiest way out, it should only be considered if you have no other choice.

The consequences of a surrendered vehicle can follow you for many years. Defaulting on your loan and damaging your credit score makes everything more difficult and expensive. Future loans, credit cards, rentals, utilities, and more could be impacted. That’s why it’s critical to avoid this nuclear option if at all possible.

If you simply can’t afford your current car payments, have a frank discussion with your lender first. There may be hardship assistance programs or other solutions to help you get back on track. Returning the vehicle should only happen once all other avenues have been fully explored and ruled out.

While it may provide short-term relief, voluntary repossession causes long-term hardship. With smart money management and open communication, you can likely keep your car and your good credit. Don’t make this critical mistake without understanding the full consequences.

 

Conclusion

Returning a financed vehicle should be an absolute last resort. This path involves serious long-term damage to your credit and finances. If you’re struggling with payments, be sure to fully explore all your alternatives first.

To recap, voluntarily surrendering your car will likely devastate your credit score, leaving you to pay higher interest rates for years. You’ll also lose your down payment and any other money invested in the vehicle. On top of that, you may still owe additional money after the lender auctions it off.

Before making this drastic move, do everything possible to refinance, lower your payments, or sell the car yourself. If you must surrender it, be prepared for the harsh financial consequences. Managing the situation carefully can help minimize the impact to your credit and finances.

 

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Questions About Returning a Financed Car

Unfortunately, no. Once you drive a financed vehicle off the car dealership lot, you own the vehicle. There is no option to return the car in Canada, even within a few days of purchase. The car dealership is not obligated to take back a financed car.

You have a few options if you can no longer afford your financed car payments in Canada:

 

  1. Refinance your auto loan to lower your monthly payments. This stretches out the loan term to reduce the payment.

 

  1. Trade in the car for a less expensive one so your monthly payments are lower. You will still owe any negative equity you have on the original loan.

 

  1. Voluntarily surrender the car back to the lender. This severely damages your credit but releases you from the loan. The lender will sell the car and you are responsible for any remaining loan balance.

Yes, you can voluntarily surrender your financed vehicle back to the lender in a process called “voluntary repossession.” Contact your lender, return the car and any sets of keys, and sign a voluntary repossession agreement. Be aware you will still owe any remaining loan balance once the vehicle is sold at auction. Your credit score will also take a major hit that can take years to recover from.

When you voluntarily surrender a financed car in Canada, the lender takes possession of the vehicle and typically sells it at a car auction. After reimbursing itself for any repossession, transportation, cleaning and auction fees, the sale proceeds go towards paying off your outstanding auto loan balance. If those proceeds don’t cover the entire loan amount owed, you are still responsible for paying the lender that remaining deficiency balance.

Yes, even if you voluntarily return your financed vehicle in Canada you will likely need to pay additional money. Any negative equity on your loan and the lender’s costs to repossess, transport, clean, store and auction the vehicle come out of your pocket first before any sale proceeds are applied to the loan principal. You also must pay any remaining deficiency on the loan if the car sells for less than what you owed.



No. The financing lender, not the dealership, lent you the money to purchase the car. If you default on your auto loan, the lender is the entity that will attempt to repossess the vehicle and can come after you legally for any remaining balance owed. The dealership already got paid in full by the lender at the time of your purchase.

Even if you hide your financed vehicle after defaulting on your loan in Canada, the consequences catch up eventually. The lender will hire repossession agents to track down and seize the vehicle. Not only does this destroy your credit, but you can also face legal charges for auto theft in certain cases. This results in heavy financial penalties, criminal charges, and possibly even jail time. It’s best to avoid this scenario at all costs.

Absolutely. When you voluntarily surrender your financed vehicle in Canada, it is considered a default on your auto loan. Defaulting on any loan damages your credit. Voluntary repossession stays on your credit history for 6-7 years. Within the first year, the impact on your score is severe enough that it can be difficult to qualify for any kind of credit.



Expect your credit score to drop by at least 100 points when you voluntarily surrender your financed vehicle in Canada, if not much more. Some people see their excellent credit (800+ score) fall into very poor credit (below 580) after voluntary repossession. The more negative items already on your report, the lower your score will sink.

No. Voluntarily avoiding your lender and forcing them to repossess your financed vehicle should be an absolute last resort. This wrecks your credit, drains your bank accounts from aggressive collection efforts, and still leaves you owing thousands after the car gets auctioned off. You also risk getting sued or facing charges for hiding collateral.



If you’re struggling to make your monthly auto loan payments in Canada, you have options beyond surrendering the vehicle that won’t destroy your finances:

 

– Refinance the loan with lower payments

– Trade it in for a much cheaper car

– Sell the car yourself and use proceeds to pay down loan

– Speak to your lender about hardship assistance programs

– Negotiate alternate payment arrangements with lender

When you voluntarily repossess your financed vehicle in Canada, be sure to return all sets of physical keys to the car itself. You should also remove any programmed garage door openers from the sun visors. Keep these with you – do not leave them in the vehicle or give them to the repossession agent. This helps prevent potential access issues to your property long after the car is gone.

Yes. When voluntarily repossessing your financed vehicle in Canada, you free the lender from just going after the car itself as collateral on the loan. The lender now also has the legal means to pursue other assets, garnish wages, place liens on properties, and take other aggressive collection actions to satisfy the remaining auto loan deficiency balance.

If your vehicle sells at auction for less than what you still owe on the loan after voluntary surrender in Canada, that remaining balance is called a “deficiency.” You are still legally responsible for paying this entire deficiency balance to the lender, even though they have already taken possession and sold the financed car as collateral.

Absolutely. When voluntarily turning in your financed vehicle in Canada, be prepared for the lender to pursue full legal action if you fail to repay any deficiencies from the loan after they liquidate the car. If winning a judgement, they can aggressively go after your wages, properties and assets to collect on this outstanding debt for years until the statute of limitations expires.



Expect your auto insurance rates to increase significantly after the voluntary repossession and surrender of your financed vehicle in Canada. Insurance companies see you as high risk for filing future claims. Some insurers may drop your policy altogether upon renewal. Daily commuting alternatives like public transportation become a necessity until you can get approved coverage again.

Marginally, yes. Defaulting and hiding the securing collateral gives lenders justification to pursue harsh long term legal action. Voluntary surrender shows responsibility by handing over the vehicle before they are forced to hunt it down. While credit score damage remains severe in either case, voluntary repossession plays slightly better with lenders for new financing in the future.

It takes a minimum of 1-2 years before most special financing lenders will consider extending a new auto loan after a voluntary repossession in Canada. Expect to pay significantly higher interest rates due to the perceived risk. Most traditional banks will not grant new auto financing for 5-7 years following a voluntary surrender of a vehicle.

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