I Can’t Afford My Car Payment Anymore: What Are My Options in Canada?

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    As your next car loan payment looms, you check your bank account and realize you don’t have the money you need. What a terrible feeling! Whether you face unexpected bills or a job loss, struggling to afford your car payment can stress you out. 

    In this article, we will explore the basics of car payments, the legal implications of missed payments and steps to take. Even better, we’ll share different financial solutions and debt relief options. By the end, you’ll have a better understanding of what to do when you cannot afford your car payment anymore.

    Understanding the Importance of Car Regular Payments

    Basically, car loans’ monthly payments cover both the principal amount borrowed and the interest charged by the lender. Therefore, a portion of your payment goes towards reducing your debt (the principal) and paying the interest charges.

    The principal equals the actual amount you borrowed to purchase the car, while the interest adds the borrowing cost. The interest rate gets determined by various factors, such as your credit score, loan length and the current market.

    In the early months of your loan, a larger percentage of your payment goes towards interest charges. This ensures that the lender receives a significant portion of the interest upfront. Meanwhile a smaller portion goes towards reducing the principal amount owed. 

    As you continue to make regular payments over time, a larger portion of your payment reduces the principal balance. Eventually, you pay off the entire principal amount, along with the accumulated interest, by the end of the loan term.

    Each time you miss a car loan payment, you extend the time of the loan and could end up paying more interest. However, you could also trigger extra fees or have your car repossessed. After three months, your lender can begin legal action, adding to your stress levels. 

    When you find yourself unable to make your car payments, potential legal and financial implications may arise. By dealing with this issue quickly, you minimize any problems that could leave black marks on your reputation.

    Impact on Credit Score

    Missed car payments can negatively impact your credit score. After all, your payment history factors into determining your creditworthiness. Late or missed payments can lower your credit score, making it more challenging to secure credit in the future.

    When you default on your car loan, it gets reported to credit bureaus, which can have lasting effects. A bad credit score affects your ability to obtain credit and influences the interest rates offered on other loans or credit cards.

    If your vehicle is repossessed due to non-payment, it can make it even more difficult to rebuild your credit in the future. A repossession can lower your score from 60 to 240 points and stay on your credit report for seven years. Meanwhile, your credit rating plummets to an R-8, just one above one level of filing for bankruptcy. 

    If you fall significantly behind on your car payments, your lender may have the right to repossess your vehicle. Car repossession typically occurs when you consistently fail to make payments and fail to communicate with your lender.

    When a car gets repossessed, it can throw your life into chaos. First, you lose possession of your vehicle. Further, the lender has the right to sell the repossessed vehicle to recover the outstanding loan balance. If the sale proceeds don’t cover the debt, you may still have to pay the remaining balance. At the same time, you have to fork out for other ways to get around.

    Understanding your rights and obligations under your car loan agreement helps you avoid any legal consequences. Familiarize yourself with the terms and conditions of the loan, including any grace periods or alternative payment arrangements. You may discover some options to help you through these difficult times.

    Remember, you’ll feel better when you address the situation proactively rather than ignoring it. By taking action and seeking assistance, you avoid the negative legal consequences associated with missed car payments.

    Immediate Steps to Take When You Can’t Afford Payments

    If you find yourself unable to afford your car payments, take immediate action. The problem will not disappear, but only worsen your financial situation. Here are some steps you can take:

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    Contacting Your Lender

    If you face financial difficulties and cannot make your car payments, talk with your lender. Many lenders will work with borrowers so they can keep their vehicles while still meeting their financial obligations.

    Reach out to your lender as soon as you realize you’ll miss a car payment. Explain your situation honestly and see if they can offer any temporary solutions or adjust your payment schedule. Many lenders seem more willing to work with those who communicate their difficulties early on.

    Before contacting your lender, get prepared. Gather all the necessary documents, such as your loan agreement, recent payment statements and any proof of financial hardship. This will help you present a clear picture of your situation and increase the chances of finding a suitable solution.

    During the conversation, don’t hold back on asking questions. Inquire about any available hardship programs, loan modifications or options for deferring payments. Lenders understand that financial problems can arise, and they may have resources in place to assist borrowers in challenging situations.

    Remember, keep the lines of communication open with your lender and provide any requested information promptly. By working together, you may find a temporary solution that works for you both. After all, the lender wants you to continue your arrangement and pay back the loan.

    Revisiting Your Budget

    Take a close look at your budget and identify any areas where you can cut expenses or reallocate funds. This could involve trimming unnecessary expenses or finding ways to increase your income temporarily. By adjusting your budget, you may free up some money to put towards your car payment.

    Start by examining your monthly expenses. Do you have any subscription services or memberships that you can temporarily suspend or cancel? Consider reducing discretionary spending, such as eating out or movie nights, until you regain financial stability. Short-term, small sacrifices can make a significant difference in your ability to repay your debts.

    Additionally, explore opportunities to increase your income. What part-time job opportunities can you embrace in your area? Could you take on freelance work or find a side hustle to supplement your current income? By exploring these options, you may generate additional funds so you can afford your car payment.

    When revisiting your budget, be realistic and prioritize your expenses. Focus on essentials such as housing, utilities and food, while temporarily cutting back on non-essential items. By creating a detailed budget and sticking to it, you can work towards resolving your car payment difficulties.

    Exploring Different Financial Solutions

    If contacting your lender and adjusting your budget don’t make your car payment affordable, consider exploring alternative financial solutions.

    When faced with high car payments that strain your monthly budget, you have options to  regain control of your finances. Exploring alternatives can provide the relief you need and pave the way towards a more stable financial future.

    Refinancing Your Car Loan

    First, you could consider refinancing your car loan. This involves negotiating new terms with your lender, which can potentially lead to a more manageable monthly payment. By extending the loan term, you can spread out the payments over a longer period, reducing the immediate financial burden. Additionally, refinancing may allow you to secure a lower interest rate, saving you money in the long run.

    Before deciding to refinance, carefully evaluate the terms and conditions offered by different lenders. Comparing interest rates, fees and repayment options with a car loan calculator will help you make an informed decision

    Selling Your Car 

    If your car payment remains too high without feasible options for reducing it, selling your car even though there is still a loan on it might suit you. After the sale, either buy a cheaper car or use public transportation if you live in a city with that service. This approach not only reduces your overall debt load but also frees up additional funds that can be allocated towards other essential expenses.

    Traditionally, car owners in a bind would turn to a dealership to unload an unaffordable car loan. However, the business may offer you less to make up for the cost of refurbishing and advertising the car.

    Perhaps, you could trade down by choosing a cheaper car with a lower loan payment. The dealership will subtract the remaining balance from the cost of the new vehicle. Voilà, you only have to pay the difference!

    Alternatively, online dealers, such as Clutch, purchase cars and pay off their owners’ loans. You receive an upfront payment without worrying about finding a buyer. However, the inspection and appraisal process could eat into the value of your car and the final payout. You may be surprised how many sites help you sell your car in Canada.

    Finally, you can take out a personal loan to cover your payments while you market your car. Once you sell the car, you pay off both loans and breathe a sigh of relief. Yet, you may find it hard to get a lender to extend you more credit when you already face a crunch.

    Voluntary Surrender vs Involuntary Repossession

    What if you find yourself unable to afford your car payment and your finances won’t improve in the near future? In this case, you may consider a voluntary surrender rather than waiting for the lender to repossess your vehicle. A car voluntary surrender allows you to return the car to the lender, potentially avoiding extra costs and legal consequences.

    Before opting for a voluntary surrender, consider the potential impact on your credit score and future borrowing opportunities. While it may provide temporary relief, have a plan in place to address your transportation needs after surrendering your ride.

    Both forms of repossession leave a stain on your credit rating. However, the main difference lies in the sense of empowerment as you take matters into your own hands.

    Exploring different solutions when faced with an unaffordable car payment can help alleviate the financial strain. By carefully considering options such as refinancing, selling your car, or voluntary surrender, you can regain control of your finances.

    Debt Relief Options in Canada

    If your financial situation remains dire and you cannot find a solution to afford your car payment, it happens. Consequently, you can turn to these debt-relief options in Canada.

    Consumer Proposal

    A consumer proposal marks a formal arrangement made between you and your creditors through a Licensed Insolvency Trustee. It allows you to propose a modified payment plan, which may reduce your overall debt. A consumer proposal can help you manage your financial obligations and potentially avoid bankruptcy.


    Always view bankruptcy as a last resort after exhausting all other options. It provides a fresh start by eliminating most of your debts, including your car loan. However, bankruptcy comes with significant consequences and should be carefully considered with the guidance of a qualified professional.

    Credit Counseling

    When you feel snowed under, credit counselors help you burrow out so you can see the sunlight again. Credit counseling results in financial education, help with budgeting and debt settlement programs. They go over your budget line by line to help manage your expenses. Next, they help you decide which debts to tackle first to make the greatest impact. 

    The Bottom Line

    Not being able to afford your car payment in Canada can challenge your resourcefulness, but you do have options. Understanding car payment basics, exploring financial solutions and considering debt relief options can help you navigate through this difficult time. Remember, take immediate action, communicate with your lender and seek professional advice if needed. By proactively addressing problems, you can work towards finding a solution that allows you to regain control of your finances.

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    About The Author: Arthur Dubois
    Arthur Dubois is a personal finance writer at Hardbacon. Since arriving in Canada, he has managed to build his credit score, which he monitors for free using Borrowell. Arthur invests in the stock market without paying any fees through the online broker Wealthsimple Trade and earns 2.5% interest on the money he keeps in his EQ Bank's Savings Plus Account. He pays for his online subscriptions using his prepaid KOHO credit card, and uses his BMO CashBack Mastercard for most of his in-store purchases. When he buys bitcoins, it’s with the BitBuy online platform. Of course it goes without saying that he uses the Hardbacon app so that he can manage all of his finances from one convenient place.

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