Here's What Happens if You Miss a Car Payment in Canada
Here's What Happens if You Miss a Car Payment in Canada
Posted on October 21, 2022
Nobody sets out to miss a car payment but life happens. We are all busy, we all have a lot going on and it’s easy to miss something when your attention is elsewhere. But what happens if you miss a car payment in Canada?
We're going to outline exactly what happens if you miss a car payment and how it can impact your credit score.
Missed Car payments
If you miss a single payment, the lender may wait 24-48 hours and then email or call you to remind you. They may also charge a late payment fee.
If you don’t pay within a week to 28 days, the lender will send a missed payment letter outlining the repercussions. Some lenders will also call or email you to avoid further action.
If you don’t pay within 28-30 days of the missed payment, your auto loan account will likely officially go into arrears. The lender can also levy more fees and begin charging extra interest on the outstanding amount.
Don’t pay within 90 days of that missed car payment and the lender may begin legal proceedings.
Lenders know life happens and know things get busy. Many of the better lenders will give you a bit of time to pay up if you have missed a single payment. If it’s part of a pattern, they may not be so understanding.
Late auto loan payments and your credit score
If you miss a loan payment but pay in full within a day or two, it is likely that nothing will happen. You settled the account and all is good. That’s your single strike gone though.
If you miss an auto loan payment and ignore the lender’s prompting, the lender will eventually report the missed payment to the credit bureaus.
This is when things get more serious.
The lender will likely begin default proceedings and ramp up the pressure to pay. Your credit report will now include a missed payment and your credit score will take a hit.
How much of a hit depends on your current score. If you have excellent credit, you could see a drop of anything up to 180 points. If you already have bad credit, the hit will be lower.
That missed payment note on your credit report could stay in place for up to 6 years. It will have a serious impact to begin with as any subsequent lender will see a recent missed payment and will want to know why.
Once you have 6 months or more of on-time payments after that missed payment, it will have less of an impact.
It’s always better to avoid missing a payment wherever possible but if you do miss one, don’t wait around. Be proactive. Contact the lender, explain why the payment was missed and settle it as quickly as you can.
How to Never Miss a Car Payment Again
Setting up your plan will take a little while but once done, requires minimal effort to maintain. In return, you can see exactly what’s coming in, what’s going out, whether you’re living within your means and can afford an auto loan.
Oh, and all your bills are paid on time too and you'll never miss a car payment!
Create a household budget
Your first task is to create a simple spreadsheet for your budget. Have a column for your income, a column for all outgoings and a column for all debts. Fill in as much as possible, including everything you regularly spend money on.
Order any debts in order of interest rate with the most expensive at the top.
Set up online accounts for everything
Set up an online account for every bank account, credit card, auto loan and utility. While you won’t necessarily need them now, it’s easier to make an emergency payment if the account is already up and running.
Create automatic payments for every outgoing
Set up automatic payments for every bill you have if you haven’t already. If you can set the payment date, set it for the day after you get paid to make sure there is enough money around to pay everything.
Set up a minimum payment for all credit cards but aim to clear them in full each month. The automatic payment is just there to ensure you never miss one, not to replace paying in full.
Set a payment calendar on your phone or computer
Set a reminder for any payments you cannot make automatically on the device you use most. If you sit at a computer all day, set a reminder there. If you live on your phone, set the reminder there.
When you see the reminder, get into the habit of making the payment there and then rather than delaying it until later.
Set up automatic savings
Your new household budget should have identified if you have money left over each month for savings. If you do, set some aside for emergencies by making an automatic payment to a savings account alongside your bills.
Pay as much or as little as you can afford, but make sure to save something. Having savings around for emergencies means not having to use credit cards or other forms of borrowing.
Organize your money
These tips are optional but useful.
Set up a spending account – Make an automatic payment each month into a discretionary spending account for you to use for family events, entertainment and general use.
Set up secondary savings – Once your emergency fund has $5,000 or so in it, set up another savings account for longer term savings. This will pay higher interest and can be used as an auto loan down payment or something else.
We’re not going to pretend that managing money is easy, because it isn’t. The process is simple enough but making finances stretch can be tough. But with a little organization, anything is possible!
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