There is no feeling that’s worse than being in financial trouble – and in Canada, this is all too common. Around 20% of Canadians have sub-par credit, and consumer debt burdens have continued to rise throughout the last decade.
So if you are having financial in Canada and have purchased a new or used vehicle, you may end up in a situation where you can’t make your monthly car payments.
But if this is the case, don’t panic – there are some steps you can take to avoid repossession, and keep your car. Let’s go over your options now.
1. Refinance Your Loan
If you had bad credit when you bought your car, you could be paying anywhere between 10%-30% APR. But if your credit score has improved over the intervening months (or years) you may be able to get a better deal on your auto loan by refinancing.
Take a look at your credit score using a major credit reporting agency such as TransUnion or Equifax, and see if it has improved since you first took out your loan. If you have not had any trouble staying out of debt, there’s a good chance it has improved significantly.
Compile your credit information, as well as other information about your financial health, and contact the issuing bank to refinance your loan. You may be able to get a better APR, which will save you quite a bit of money each month.
2. Pay Down Or Consolidate Your Other Debts With The “Debt Avalanche” Method
Making minimum payments on loans such as personal loans, credit cards, student loans, and title/payday loans seems like a good idea – but it isn’t.
If you only pay the minimum on your other debts each month, you end up spending significantly more money on interest – and you don’t your total debt burden.
Instead of making minimum payments on all of your debt, use the “Debt Avalanche” method. In this method, you identify the highest-APR debt that you have, and begin trying to pay it off as rapidly as possible.
Then, when that debt has been paid, you move onto the second-highest APR debt – and repeat the process.
This allows you to eliminate the loans that have the highest interest rates, thereby saving you money each month. And this money could go towards your monthly car payment!
3. Use A Home Equity Line Of Credit
If you are a homeowner, you can use your home as collateral to take out a loan. Because these loans are “secured” by the value of your home, they often have interest rates that are quite low. You can then use this money to pay off your monthly car payment until you get back into financial health.
Just be aware that, if you take out a loan on your home and can’t repay it, you could be in serious danger of home repossession.
4. Dip Into Savings Or Retirement Accounts
Yeah, it doesn’t feel good to do this – but it’s better than losing your car. You can pull some money from a Roth IRA or a 401(k) to make your monthly car payments. You will be penalized for this on your taxes, and may have to pay some other penalty fees. But it’s better to dip into these accounts than it is to lose your car.
5. Consider Selling Your Car And Buying A Cheaper Vehicle
If you really can’t afford your monthly payment, even with the above steps, you may want to consider selling it and buying a cheaper car. If you can sell your vehicle for about the same amount you got it for, you’ll be able to pay off the majority of your auto loan right away.
Then, you can buy a cheaper car on longer loan terms, ensuring that you have a manageable monthly loan payment that you can afford.
It’s not an ideal solution, of course – but doing this is much better than letting the bank repossess your car, because that has a major impact on your credit score, and may affect your ability to get a car loan in the future.
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At Ride Time, we’ve got the best selection of high-quality used cars in Winnipeg – and all of Canada! And with a unique network of 15+ lending institutions, we can help you get the transportation you need – no matter how bad your credit score may be.
So browse our selection of cars now, whether you’re in Winnipeg or elsewhere in Canada. We ship our vehicles around the nation, so don’t wait! Get the car you need – for less!