Car Deal Canada

What To Do If You Can't Afford Your Car Payment

Can't Afford Your Car Payment?

With inflation reaching a nearly 40-year high in Canada, many consumers are feeling the squeeze on their finances. The rising cost of living has made it difficult for some Canadians to keep up with expenses, including their car loan payments.

Defaulting on an auto loan can have severe consequences like damaging your credit, getting your car repossessed, and facing legal action. However, Canadians still have options to avoid defaulting if they take proactive steps. The key is communicating with your lender right away and exploring programs to get your payments back on track.

This guide will walk through strategies to make your car loan more affordable during financial hardship. With several options at your disposal, you may be able to modify your loan terms and avoid further financial impacts of defaulting.

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Assess Your Current Financial Situation

The first step is to thoroughly review your budget and financial situation to understand why you are struggling to make your car payments. Look at your monthly net income after taxes and identify all of your expenses. Some key areas to examine:


  • Housing costs like rent/mortgage, property taxes, utilities, etc.
  • Insurance payments for home, auto, health, life insurance
  • Credit card minimum payments
  • Student loan payments
  • Childcare and other child related expenses
  • Food costs including groceries and dining out
  • Transportation costs like gas, maintenance, parking fees
  • Entertainment and recreation spending
  • Clothing, personal care, and other miscellaneous costs


Tally up all of these monthly expenses and compare the total to your net monthly income. Look for areas where you may be able to cut back on spending to free up cash to cover the auto loan payment. Even relatively small reductions across multiple categories can add up to meaningful savings. This budgeting overview will provide you with a clear baseline to understand why you are having issues affording the car payment.


Communicate Openly With Your Lender

One of the first steps you should take if struggling with car payments is to proactively communicate with your auto loan lender. Explain that you are experiencing financial hardship and can no longer afford the monthly payments. Provide evidence of your situation if possible, such as pay stubs, bank statements, or bills. The more details you can give your lender about your circumstances, the better.

Don’t just stop paying your loan and avoid the issue altogether. That will only worsen the situation and damage your credit score. Instead, be upfront about your inability to make the payments. Your lender will likely be willing to work with you to modify the loan terms.

Ask your lender if they can lower your interest rate or extend your repayment period. This can substantially reduce your monthly payments to a more affordable level. See if they are open to letting you skip a payment or two while you get back on your feet financially. Make sure to communicate if your situation is temporary or long-term so the lender can tailor solutions.

Most auto loan lenders like Axis Auto Finance understand that setbacks happen and will try to help responsible borrowers. By being proactive, honest, and providing evidence of hardship, you increase the chances of negotiating modified loan terms that work for your situation.


Lower or Restructure Your Payments

One of the best first steps is to contact your lender directly and explain your financial hardship. Many auto lenders are willing to work with borrowers, especially if you have a history of on-time payments.

You can request that they lower your monthly payment amount. This reduces the pressure each month as you work to improve your overall financial situation. They may be able to extend the repayment term as well, which lowers the monthly cost but increases the total interest paid over the life of the loan.

Ask about temporarily deferring payments or skipping a month altogether. This allows you to catch up without damaging your credit. Keep in mind interest still accrues during this time. Make sure you can resume normal payments afterwards.

You may also ask them to restructure the loan. For example, they may be willing to waive late fees, reduce the interest rate, or allow interest-only payments for a period of time. Be honest about your situation and be prepared to provide evidence of financial hardship.

The key is to be proactive and maintain open communication with your lender. They want to get paid back eventually, so by working together you can find a solution that helps you get back on track.


Consider Refinancing Your Car Loan

If your credit score has improved since you took out your original auto loan, refinancing the loan at a lower interest rate with another lender can significantly reduce your monthly payments. Shop around with banks, credit unions, and online lenders to find the most competitive rates and refinancing offers. You may even be able to roll the amount you still owe on your car into a new loan with a lower interest rate. This can help ease the financial burden without having to sell your vehicle.

When exploring refinancing options, be sure to consider the fees involved with setting up a new loan as well as any prepayment penalties you may incur from your existing lender for paying off the loan early. Do the math to ensure refinancing makes sense financially over the life of the loan. While you’ll want a lower monthly payment, don’t extend the repayment term excessively as you’ll end up paying more interest costs over time.


Sell the Car

If you are unable to lower your monthly payments or refinance your auto loan, selling your car may be the best option. The first step is to determine if you have positive or negative equity in the vehicle.

Positive equity means your car is worth more than what you owe on the loan. In this case, selling the car allows you to pay off the loan balance and potentially have money left over.

With negative equity, your loan balance exceeds the car’s value. You will still need to come up with the difference to settle the loan even after selling the car. Having negative equity makes it more difficult to sell the car, but it can still be done.

To determine your equity position, research the current market value for your car based on make, model, year, mileage, and condition. Resources like Kelley Blue Book (KBB) provide free online appraisal tools to estimate value. Compare this to your outstanding loan balance to see if you have positive or negative equity.

Once you know your equity status, you can explore selling the car privately or trading it in to a dealership. Private sales typically yield more money. List the car online or in classifieds. Consider negotiating with the buyer to help offset negative equity.

Trading in the car is less hassle. The dealer handles the sale and loan payoff. But you will likely get less money for the trade-in. Seek offers from multiple dealers to get the best possible value.

If you have substantial negative equity, you may need to put extra money down on a replacement used car. But selling the car allows you to obtain an affordable vehicle without the burden of high monthly payments.


Voluntary Repossession

If you simply cannot continue making your car payments and see no other way out, voluntarily surrendering the vehicle may be an option. This involves proactively contacting your lender and returning the car. The lender will sell the vehicle to recoup as much of the remaining loan balance as possible. However, you will likely still owe money if the car sells for less than what you owe. The lender can pursue legal action to collect this deficiency balance.

Voluntary repossession will severely damage your credit score and show on your report for up to 7 years. Many lenders may not approve you for additional financing during this time. Additionally, you may owe income tax on the forgiven portion of the loan. However, voluntary repossession avoids further late fees, penalties, and aggressive collection tactics. For some borrowers with no other options, surrendering the vehicle may be the most practical resolution.

Before voluntarily repossessing, carefully consider all alternatives and speak with a credit counselor. Make sure you have fully explored options like refinancing, loan modifications, payment plans, and selling the vehicle yourself first. While voluntary repossession provides a clean break from unaffordable payments, it should only be a last resort due to the long-term credit score damage.


Explore Debt Management Programs

Non-profit credit counseling agencies offer debt management programs that can help negotiate more affordable payments with your auto lender. These agencies work on your behalf to get reduced interest rates, waived fees, and extended repayment terms. The counselors have experience dealing with lenders and can often achieve reasonable loan modifications.

The benefits of debt management programs include avoiding car repossession and severe damage to your credit rating. The programs provide a structured approach to managing payments and direct communication with your lender. This can give peace of mind during a stressful financial situation.

There are usually fees to enroll in a debt management program but they often save money compared to the consequences of defaulting on your auto loan. Look for non-profit agencies that are transparent about their services and fees. They should also be accredited and have positive reviews from people they’ve helped.

Debt management programs require you to open up about your full financial situation. The counselors will complete a budget analysis and make recommendations on managing all your debt, not just the car loan. If you commit to the program, you agree to follow their advice and make payments to creditors through them.

Overall, a debt management program can be an effective option if you’re struggling with your car payments and other debts. The programs provide expert guidance and often yield better results than trying to negotiate with lenders on your own.


Leverage Government Benefits

If you are facing financial hardship and struggling to make your car payments, government assistance programs may be able to provide some relief. Two key programs to look into are employment insurance and disability assistance.

Employment Insurance (EI) provides temporary financial assistance to eligible workers who lose their job through no fault of their own. You may qualify for EI regular benefits if you were laid off or your hours were reduced. The current maximum EI payment is $638 per week. While receiving EI, you could use some of that income to cover your auto loan payment.

Disability assistance is available through provincial and territorial programs for those unable to work due to a medical condition. The amount of assistance depends on your specific situation. If you qualify for disability benefits, you may be able to use a portion to help pay your car loan during this difficult period.

Before applying for EI or disability assistance, be sure to learn about eligibility criteria, required documentation, and application processes. These programs can provide critical financial aid if you’re unable to make your car payments for reasons beyond your control. They should be considered as part of your overall strategy for managing vehicle debt you can no longer afford.


Take Out a Personal Loan

Another option to make your car payment more affordable is taking out a personal loan. Personal loans typically have lower interest rates than auto loans. You can use a personal loan to pay off your existing car loan balance, essentially refinancing the debt at a lower rate.

This can help reduce your monthly payments. Be sure to shop around with banks, credit unions, and online lenders to find the best rates. Focus on getting a loan with at least a 12-24 month term so the payments are manageable.

A personal loan allows you to consolidate other high-interest debts along with your car loan. This simplifies things to just one monthly payment. Pay off credit card balances and other debts with the loan proceeds. Then just make payments towards the lower-rate personal loan until it’s paid off.

The key is being approved for a large enough personal loan amount to cover your car loan payoff and other debts. Good credit scores in the 670+ range improve your chances. Comparison shop for both rates and loan amounts to find the best personal loan offer.


Use Your Home Equity

If you have sufficient equity built up in your home, you may be able to leverage it to help pay off your auto loan through a home equity line of credit (HELOC). A HELOC can provide funds at lower rates than your existing car loan, essentially letting you refinance your auto debt. You can draw from the line of credit as needed to make lump sum payments on your auto loan. This can help you pay it off faster, lower your monthly payments, or give you some temporary relief during financial hardship. Just be aware that you are putting your home up as collateral when taking out a HELOC, so defaulting can put your property at risk. Also factor closing costs into deciding if it’s worthwhile, and aim to pay off the HELOC quickly once your auto loan is resolved.


Downsize Your Vehicle

If your current car payment is unaffordable, one option is to trade it in for a less expensive used vehicle. This allows you to downsize to a more budget-friendly car loan payment each month. If you have positive equity in your current vehicle, you can put the extra money from the trade-in towards the used car purchase to lower your overall auto loan amount.

When trading your car in, be sure to negotiate the best resale value possible. Research the current market value using online pricing guides and get quotes from multiple dealers. This ensures you maximize your trade-in, which gives you more money to put down on the replacement vehicle.

Opt for a used car that’s 2-5 years old, as they depreciate slower than brand new models. And beware of dealers trying to sell you extra warranties and protections you may not need on a used vehicle. Stick to the basics like a certified pre-owned car with a standard powertrain warranty.

The goal is to find reliable used transportation with significantly lower monthly payments. This should provide much-needed breathing room in your budget. Just be sure to get the used car inspected first and avoid high-mileage vehicles that may require costly maintenance and repairs down the road.


Defer Car Payments

If you’re experiencing a temporary financial hardship, deferring your car payments may provide some short-term relief. Some lenders like Source One Financial allow borrowers to skip one or two payments per year without negatively impacting their credit score or being charged late fees. This gives you time to get back on your feet financially before resuming your regular monthly payments.

To defer payments, you’ll need to contact your lender directly and request a payment deferral or skip-payment option. Not all lenders offer this, so check your loan agreement or ask your lender about their policies. There may be some fees involved with deferring payments, such as an administrative fee each time you skip a payment. But this is likely much less expensive than the late fees and penalties you would incur if you simply stopped paying your loan.

Keep in mind that while deferred, interest will continue accruing on your loan balance. So you’ll end up paying more interest over the life of the loan in exchange for the temporary payment relief. Make sure you have a plan to resume making your regular monthly payments after the deferral period ends. This option just buys you some breathing room when money is tight.

Overall, deferring your car loan payment can be a helpful last resort if you’re facing a short-term cash crunch. But use it strategically in combination with other options, like budgeting or loan modifications, for managing long-term financial hardship. It’s not designed to be an indefinite solution.


File for Bankruptcy

Filing for bankruptcy may seem like a drastic measure, but it can provide the financial relief you need if you truly cannot afford your car loan payments. With bankruptcy, certain debts like credit cards, medical bills, personal loans, and in some cases auto loans, can be completely discharged. This means you are no longer legally obligated to pay them back.

However, bankruptcy has severe consequences for your credit score and will stay on your credit report for 6-10 years. It becomes very difficult to qualify for any kind of financing during this time. Additionally, you may lose some assets like a second vehicle or vacation property in the bankruptcy process.

There are two main types of consumer bankruptcy – Chapter 7 and Chapter 13. With Chapter 7, eligible debts can be wiped clear, while Chapter 13 involves setting up a 3-5 year structured repayment plan overseen by the court. Speak to a licensed bankruptcy trustee to fully understand your options.

Bankruptcy should not be taken lightly as a strategy to deal with unaffordable auto loans. But if your financial situation is truly dire, with no ability to repay what you owe, it may be the right path forward despite the consequences. The key is acting sooner rather than later, as creditors can take legal action after a certain period of missed payments.


Realign Your Budget

If you’re struggling to make your monthly car payments, the first place to look is your budget. Examine your income and expenses closely to find areas where you can cut back on spending to free up more cash for your auto loan payment. Here are some budget realignment tips:

Reduce expenses where possible. Make a list of all your monthly expenses from necessities like housing, food and utilities to discretionary spending on dining out, entertainment, clothes etc. See where you can trim the fat in your discretionary spending categories.

Downsize your housing if you’re overextended. Consider getting a roommate, moving to a less expensive neighborhood nearby or negotiating with your landlord. Even a couple hundred dollars in monthly rental savings can make a difference.

Cut back on utilities. Reduce energy use, switch to lower cost providers, and examine your cable/internet/cell phone bills for potential savings.

Meal prep at home and limit restaurant spending. Eating out is often where budgets bleed the most. Prepare simple meals at home for a fraction of the cost of dining out.

Pause unnecessary memberships and subscriptions. Audit recurring services you could live without for a while like the gym, Netflix, Spotify etc.

Limit other non-essential spending. Cut back on areas like clothes shopping, hobbies, travel and entertainment. Stick to needs rather than wants until your finances improve.

Boost your income. Can you pick up a side gig or some overtime at work? Even an extra few hundred dollars a month can get your car payment back on track.

Realigning your budget involves both reducing expenses and finding ways to increase income. With some sacrifice and discipline now, you can get your car loan under control and avoid further financial consequences down the road.



If you’re struggling to make your car payments, it’s critical that you take action as soon as possible. The options outlined in this guide – such as refinancing, selling the car, or negotiating with your lender – can help you avoid further financial consequences. While it may seem overwhelming, being proactive and exploring programs that fit your situation will put you back in control.

The most important thing is not to ignore the issue. Defaulting on your auto loan can severely damage your credit score for years. It also leads to additional fees, penalties, and even repossession of your vehicle. Don’t let things spiral out of control.

By communicating openly with your lender, lowering your payments, tapping government benefits if eligible, or even voluntarily surrendering the car, you can get your auto loan back on track. With several options at your disposal, you can avoid ruining your credit rating and find a solution that works for your unique financial circumstances.

While no one wants to struggle with debt, being resourceful and responsible will help you maintain your transportation, avoid further credit damage, and regain a sense of financial stability.


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Questions About Affording Car Payments & Your Options

If you’re struggling to make your car payments in Canada, you have a few options to consider:


  1. Refinance your auto loan to lower your monthly payments. This involves taking out a new loan at a lower interest rate to pay off your existing car loan balance. It can help reduce your payments but results in paying more interest over the full loan term.


  1. Trade in your vehicle for a less expensive one. You take your current vehicle to a dealership and use its trade-in value to put towards a used vehicle with lower monthly payments. This also shortens your loan term.


  1. Voluntarily surrender your vehicle. As a last resort, you can return the car to the lender. They will sell it and require you to pay any loan balance left over after the car sells. This damages your credit but releases you from loan payments.


  1. Consolidate other debts into your car loan. If you have good equity in your vehicle, some lenders may allow you to add other debts like credit cards to your auto loan balance. This turns it into one manageable payment.


  1. Speak to your lender about hardship assistance. There may be options like payment deferrals, extensions, or re-amortization of the loan into smaller payments over time.

    If you’re struggling to make your car payments in Canada, you have a few options to consider:

    1. Refinance your auto loan to lower your monthly payments. This involves taking out a new loan at a lower interest rate to pay off your existing car loan balance. It can help reduce your payments but results in paying more interest over the full loan term.

    1. Trade in your vehicle for a less expensive one. You take your current vehicle to a dealership and use its trade-in value to put towards a used vehicle with lower monthly payments. This also shortens your loan term.

    1. Voluntarily surrender your vehicle. As a last resort, you can return the car to the lender. They will sell it and require you to pay any loan balance left over after the car sells. This damages your credit but releases you from loan payments.

    1. Consolidate other debts into your car loan. If you have good equity in your vehicle, some lenders may allow you to add other debts like credit cards to your auto loan balance. This turns it into one manageable payment.

    1. Speak to your lender about hardship assistance. There may be options like payment deferrals, extensions, or re-amortization of the loan into smaller payments over time.

If you can no longer afford to make your monthly car loan payments in Canada and stop paying, here is what typically happens:


  1. After 30 days of missing a payment, your account goes into delinquency status. The lender charges late fees and additional interest.


  1. After 60 days, the missed payments are reported to the credit bureaus which damages your credit score. Collections calls begin from the lender.


  1. At 90 days late, the lender can choose to repossess the vehicle. They may voluntarily pick it up from you, require you to return it, or use a repossession company.


  1. The vehicle is sold at an auction and proceeds pay down the loan. If the sale doesn’t cover your full auto loan balance, you are responsible for the deficiency balance left over. The lender can take legal action to recover this balance from you.


  1. Your credit score drops significantly from the missed payments and collections account, making any borrowing difficult in the future. The auto loan default stays on your credit report for 7 years.

If you lost your job and are struggling to pay your existing auto loan, most major banks in Canada offer hardship assistance options, including:


– Payment deferrals for 30 to 90 days to help bridge a temporary gap in income. Interest continues accumulating during deferrals.


– Term extensions to stretch payments over a longer period, reducing the monthly due amounts. More interest is paid over the life of the loan however.


– Skip-a-payment options for 1-2 months while job hunting. Interest builds during the skip period.


– Interest rate reductions may be offered after a few months of on-time payments under a hardship program. This permanently lowers monthly payments.


– Refinancing the loan once employed again to benefit from any better rates for which you now qualify. This creates a new loan structured to your current situation.


All options should be discussed with your lender to see what they can offer. Be proactive in calling them to avoid repossession. Provide evidence of your situation.

If you can no longer afford your car payments in Canada and wish to voluntarily surrender your vehicle, follow these key steps:


  1. Call and notify your auto lender that you need to voluntarily repossess the vehicle due to financial hardship. Explain why in detail. Ask them to email you the required procedures.


  1. Review all loan documents to understand impacts to your credit, loan balance responsibilities after liquidating the car, and the timeline of steps.


  1. Continue insuring and registering the car until it is picked up by the lender. Failure to do so may have legal consequences.


  1. Remove all personal belongings from the vehicle before the scheduled repossession date. Once taken, you will not have access to it again.


  1. Return any keys, key fobs and garage door openers to the tow truck driver picking it up. Provide any gate codes needed to access the vehicle.


  1. Expect to owe a balance if the vehicle sells at auction for less than what you owe. The lender will continue attempts to recover this deficiency balance from you.


Be prepared for major damage to your credit score and report if voluntarily repossessing.

If you find yourself in a situation in Canada where your auto loan balance is higher than the actual resale value of your car, known as being “upside down” or “underwater” on your loan, here are some options:


  1. Continue paying on the loan as required, paying down the principle over time until you have positive equity in the vehicle.


  1. Refinance the loan to lower your interest rate and monthly payment to something more affordable, if you qualify with your lender.


  1. Trade it in towards a less expensive used car with lower loan payments and roll the negative equity over into the new loan.


  1. Voluntarily repossess the vehicle if unable to pay. Prepare for the lender to pursue legal action if auction proceeds don’t cover your loan balance.


  1. Consider bankruptcy if in severe financial distress, which discharges remaining auto loan balances but severely impacts your credit.

Most top Canadian lenders allow auto loan payment deferrals for 30 to 90 days for those who lose their job or face temporary financial hardship and have previously been in good standing on their loan. To qualify:


– Contact your lender right away, explain your situation and request a deferral. Proof may be required.


– You must continue insuring and registering the vehicle during the deferral as normal.


– Interest keeps adding to the unpaid balance during the deferred period.


– Once the deferral period ends after 1-3 months, regular payments resume. The term is not extended.


– Late fees are typically waived during the deferral timeframe.


– Eligibility and number of deferrals allowed depends on the lender.


Deferrals let you briefly pause payments while job hunting without damaging credit score or history if managed properly.

If you recently missed an auto loan payment due to an unexpected illness, injury, or accident, here are some smart financial steps to take:


– Contact your lender immediately, explain what happened and discuss options before further delinquency occurs.


– Provide doctor’s notes or accident reports to support your claim if requested. This proves the one-time nature of the event.


– Ask about hardship assistance options like a 30-60 day payment deferral or loan restructuring into lower payments. Interest continues accruing.


– Avoid extra fees and hits to your credit by keeping other accounts current during this hardship time if possible.


– If disability insurance applies, file a claim providing medical evidence from your doctor to replace lost income for several months.


– If needed long-term, consider loan consolidation or surrendering the vehicle until you can work again and manage payments.


Communicate with creditors directly regarding your unique situation and provide documentation. This gives more options before an account becomes seriously past due from something out of your control.

If your financed vehicle is totaled in an accident but you still owe payments, act fast to avoid further financial issues:


– Notify your auto insurance provider and lender of the total loss right away. Ask what documents are required from you.


– Have the insurer’s adjuster assess damage and declare a total loss promptly. Negotiate fair market value payment.


– If gap insurance was purchased with your policy, this should help pay the remainder of your auto loan balance owed.


– Without gap coverage, you’ll likely owe your lender any balance the insurance payout didn’t cover.


– Get clarification from the lender on expected loan repayment, revised schedules, other options like surrendering collateral assets, or forgiveness policies.


– Consider continuing monthly payments temporarily if some equity was present prior to total loss.


– Start the car replacement process with your insurer as soon as possible if you need another vehicle.


Document everything in this complex situation and keep communicating with your lender to avoid further financial hardship from an unpaid balance.

If you have lost your employment income and struggle to make your monthly lease payments, here is the best approach to voluntarily ending your auto lease agreement early:


– Thoroughly review your lease documents to understand responsibilities, fees and key dates impacting your situation.


– Contact the leasing provider immediately to discuss options, fees if turned in early, and the official process for voluntary surrender.


– Continue paying insurance and registration on the vehicle until returned to avoid legal issues.


– Remove all personal items from the car before physically returning it to the agreed location.


– Pay any applicable early termination or disposition fees outlined in your lease contract.


– Get written confirmation from the leasing company that you have officially ended your lease to prevent further bills.


– Expect that credit score impacts, leftover lease balance responsibilities, and early turn-in penalties will apply based on your signed contract.

A balloon payment, due when your auto lease ends, can be a major financial burden. If unable to afford this final payment to purchase the vehicle, you still have options:


– First, discuss the situation with your leasing provider early and request a lease extension if possible. This delays the large payment coming due.


– Explore new lower lease offers on another vehicle that results in cheaper payments going forward.


– Arrange financing to officially buy the vehicle instead and keep driving it, if affordable.


– Return the car instead without buying it. Pay any lease-end inspection fees or early turn-in charges per your contract.


– Purchase optional third-party gap insurance early in your original lease, which helps pay part of an excessive balloon payment you later can’t afford.


Understand that returning a leased vehicle without final payment usually means you have nothing to show for months of depreciating lease payments – so weigh options carefully ahead of lease maturity.

If facing unemployment, reduced income, illness or other financial hardship making your existing car payments unaffordable, discuss these options with auto lenders:


– Loan term extensions to reduce your monthly dues by stretching payments over additional months past original maturity.


– Interest rate reductions may be negotiated after a few months of proven on-time payments under a new hardship program.


– Defer payments completely for 1-3 months while getting back on your feet. Interest still accrues during this time.


– Adding missed payments to the end of your loan term rather than defaulting.


– Partial loan forgiveness in the form of principle reductions if negotiating a customer loyalty incentive.


– Refinancing once your situation stabilizes, benefitting from better rates for which you now qualify.


– Voluntary early lease termination if facing hardship, requiring applicable fees.


Auto lenders want to retain your business long-term. Calling them early to discuss relief options is better for all parties than letting an account become severely delinquent.

When your vehicle gets repossessed for missed payments and sells at auction for less than your remaining loan balance, you are responsible for this deficiency balance. Options include:


– Negotiate a settlement with the lender for a lesser lump-sum payment that satisfies your obligation. Get any agreement formalized in writing.


– Work out a monthly payment plan spreading out the deficiency balance over several years until paid. Expect interest charges to apply.


– Include the outstanding deficiency as part of a consumer proposal or bankruptcy if facing broader financial distress. This legally eliminates the balance owed.


– Wait and see if the lender sells the remaining deficiency balance to a collections agency, who you can then negotiate with.


– Prepare for potential small claims court action if refusing the pay the balance, which can result in wage garnishment.


No matter what, communicate with the lender regarding next steps so they don’t resort to severe legal measures right away to recover deficiency balances.

If filing for bankruptcy and you have an outstanding car loan or lease, be sure to:


– Consult your bankruptcy trustee/insolvency advisor on whether to keep or disclaim the vehicle as part of your assets.


– Continue registering, insuring and maintaining the vehicle in good working order before and during bankruptcy. Failure do to so risks creditor legal action.


– Get up to date on payments prior to filing your bankruptcy paperwork to avoid seizure of the asset afterwards.


– List the vehicle loan or lease as a liability/debt to be included in your bankruptcy discharge.


– Amend budget planning to account for ongoing auto payments if intending to keep the vehicle after bankruptcy.


– Catch up on any loan payments that may have been missed during your financial hardship once the bankruptcy concludes and you get back on your feet.


Protecting your ability to reliably get to work by retaining an affordable vehicle after bankruptcy often makes good financial sense as you rebuild credit.

If you lost your job and income, deferring auto loan payments may only offer temporary relief before regular payments resume. Other options to discuss with lenders include:


– Interest rate discounts to permanently lower monthly payment size, lasting beyond the hardship period.


– Extension of your loan maturity date by several months or years to reduce scheduled payments.


– Partial principal forgiveness on your balance if the lender confirms solid previous payment history.


– Deferring payments but with the missed amounts tacked on as balloons payments at maturity rather than accruing interest now.


– Adding missed back payments to the end of the term rather than defaulting.


– Refinancing early once re-employed to benefit from better rates for which you’re newly eligible.


– Voluntary surrender of the vehicle if unable to get suitable relief or afford payments long-term.


This mix of short and long-term relief options can help you stay on track without severely damaging credit until you financially recover.

Breaking an auto lease agreement early by voluntarily surrendering your vehicle due to lost income results in typical lease termination penalties including:


– Owing remaining monthly payments until the leasing company can remarket and re-lease the car to someone else.


– Paying excess mileage, wear & tear and refurbishing fees highlighted in your contract.


– Potentially owing an early termination fee for breaking the lease before its scheduled maturity date.


– Having to cover the difference if the car sells at auction for less than the estimated residual value.


– Continuing insurance and registration payments until the car is collected from you.


– Having no vehicle to drive unless replacing it, adding this extra cost.


– Damaging your credit score if the surrender is not handled properly with the leasing company.


In most cases, completing a lease as agreed is better for your finances unless facing severe long term hardship from job loss. Carefully weigh these penalties before returning the vehicle early.

As a cosigner on someone’s auto loan or lease, you share equal legal financial responsibility. If the primary borrower stops making payments, consequences for you may include:


– Negative impacts showing on your credit report, damaging your credit score if payments become 60+ days late.


– Continued attempts from the lender to contact you directly regarding the past due amount.


– Potential seizure and sale of the vehicle if the loan goes into default from non-payment.


– Being held fully responsible for some or all of the remaining loan balance by the lender after default.


– Having to make payments or settle the debt yourself to avoid further credit damage or legal action.


– Potential small claims court judgement if refusing to cover missed payments and charges on a loan you willingly cosigned.


Always think carefully before cosigning any loan and make sure you can take over payments if needed. Discuss options with lenders early to avoid assumption of a bad debt not fully under your control.

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