Vehicle Repossession in Canada
Any Bad Credit Canada offers a look at vehicle repossession in Canada with a definition and explanation that any Canadian can understand.
The World Famous Repossession
No matter whom you are or where you live in the world, you probably know what repossession is. It’s also no surprise that you’re likely to think of repossession whenever the term bad credit enters your head. This is partly because of Hollywood and partly because a repo, for most people, represents the worst type of credit and the mind tends to frame things in extremes.
Think about it like this: Whenever a filmmaker is trying to convey a characters financial trouble, they use one of two scenes: The collection call or the vehicle repossession.
For most people in Canada a vehicle repossession is just a Hollywood fantasy but for many Canadian’s it’s a real life nightmare.
Everyday across Canada someone is getting their car repo’d and each year thousands of good people with an old repossession are denied credit.
If you want to avoid being another victim of car loan repossession, you first need to understand what repo means and then you must learn how to avoid repossession.
Let’s talk about vehicle repossession in Canada.
Types of Repossession in Canada
- Involuntary Repossession – An involuntary repossession occurs when an auto lender has the financed vehicle seized. This almost always happens when car payments are behind, the debtor is not cooperating and the lender has no choice but to send the vehicle out for repo.
- Voluntary Repossession – A voluntary repo occurs when a struggling debtor decides that they can no longer afford their car payments and that they have no choice but to give up the vehicle. For a vehicle to be voluntarily repossessed the car must be returned by the debtor instead of seized by the creditor. While a voluntary repo is helpful to the creditor because it means less collection and repossession expenses, it is still a serious case of bad credit and will result in a negative credit rating as well as a large vehicle write off.
When Are Cars Repossessed?
Different auto lenders have different policies towards repossession in Canada. Whether or not an auto lender repossesses a car loan can depend on how many payments are missed, where the vehicle is located and how cooperative the debtor is.
Late Auto Loan Payments
In some circumstances a car lender might allow their customer to carry payments a little late but only if their customer makes acceptable payment arrangements and remains in contact with them.
While there is no set amount of payments a debtor is allowed to miss, there are common repossession scenarios.
If you have a car loan and your payment is late a few days, your vehicle will probably not be repossessed. If you have a car loan and your payments are several months late, then you are at risk of repossession.
Consider the basics of bad credit reporting in Canada and apply them to your repossession risk:
0 – 29 days late will not report to your credit bureau, 30 or more days behind will report as I2. While an I2 is not extremely serious, it still represents a payment that is late by 30 or more days.
Once an auto loan reaches 60 days late or more, it becomes a very serious situation and depending on the actions of debtor and the tolerance of the creditor, repossession is likely.
If a car loan reaches 90 or more days past due without the vehicle being seized, it is probably because the debtor has made appropriate payment arrangements with their lender or they are intentionally hiding the vehicle from the bank.
If you are trying to avoid getting your car repo’d by hiding it, stop. Not only will you eventually be caught, but it is irresponsible, unethical and will ultimately hurt you financial or criminally in the long run.
Every bank and finance company has their own set of collection and repossession guidelines. This means that while it may be rare for a lender to seize a vehicle that is 30 days or less behind in payments, it is still possible.
High risk auto lenders such as special finance and subprime auto lenders often use more aggressive repossession and collection methods. This is because their customer is often a higher risk with previous bad credit history, bankruptcy or auto loan troubles. For more information on bankruptcy and how it can affect your car loan visit Bankruptcy Law in Canada.
Repossession in Different Regions of Canada
Although the payment history on a car loan has the most influence on your likelihood of repossession, the region you live in can still play a role.
Regional attributes that affect vehicle repossession in Canada include:
- Aboriginal Reserve Repossession – In Canada the leaders of a native reserve have the right to refuse anyone entry to their land. This means that any bailiff or tow truck entering a reserve to repossess a vehicle, can be denied entry or asked to leave. This unique situation can make repossessing a vehicle on a reserve very difficult.
- Hard to Reach Areas – There are certain parts of Canada that can only be accessed by boat, are impossible to reach during the winter or located very far from major highways. Hard to reach areas in Canada add significant challenges to vehicle repossession.
- Seize and Sue Provinces – Different Provinces in Canada have different laws regarding financing and sometimes vehicle repossession. For example in Canada, auto lenders are allowed to both seize vehicles and sue their debtors. Other Provinces in Canada have different repossession laws. Some Provinces only allow a vehicle to be repossessed, while others only allow the lender to sue.
While credit history and employment status are the main varies involved in a credit decision, the regional attributes listed above can also play a factor in getting a car loan approved or what the interest rate is.
These things, like credit, contribute to risk and risk decides auto loan interest rate and application eligibility.
Avoid Repossession by Cooperation
Of course making your car payment on time is the best way to avoid repossession, but if you do fall behind on car payments, there are other ways to avoid losing your ride:
- Collector Heads Up – If you know you’re going to miss your car payment or you know your payment will bounce, call ahead and give your lender a heads up. Not only will they appreciate the warning but it will give you credibility with the lender and make them feel better about the situation. It’s also a great time to make payment arrangements.
- Payment Arrangements – If you miss a car payment, you have to make it up. That is how loans work. By getting ahead of the creditor and telling them when you can repay the missed payment, you can avoid collection calls or worse. If you can’t afford to catch your payments up entirely many creditors are willing to set up a payment plan to help you get back on track.
- Buy a Payment Extension – Some finance companies will allow you to extend your due date or move your late payments to the end of your contract by paying a fee. If you suspect you will have trouble making your due date, call your auto lender and ask if you can have an extension. It never hurts to ask.
Leased Vehicle Repossession
A leased vehicle, in default, can be repossessed at any time throughout the contract. This is because a leased vehicle is never owned by the lessee, it is owned by the finance company.
When a lease matures (the lease payments are finished) the lessee, has the option of buying out their lease or returning their vehicle. In Ontario if the lessee does not return the vehicle at the end of their lease, the leasing company may choose to repossess the vehicle and charge the lessee collection and repossession fees.
Financed Vehicle Repo
A vehicle purchased through a finance agreement ( car loan contract) can also be repo’d, however there are time and balance limitations.
In Ontario, if the balance of a financed auto loan is one third or less of the financed amount, the lender cannot perform an involuntary repossession. This is often referred to as the “Two Thirds Rule”. If 2/3 of a vehicle is paid for, then the person financing the vehicle has more right to the vehicle than the finance company. This does not mean they can avoid making payments.
If a consumer has paid 2/3 or more of their car loan and they default on the loan, the lender may choose to write off the balance and register it as a collection. This can lead to a lawsuit, collection calls and sometimes even wage garnishments.
What Happens to Repossessed Cars?
In Canada an auto repo reports to the credit bureau under the status: I8. Having a previous repossession on your credit bureau is taken seriously and if you apply for credit with a recent I8 on your credit bureau, your application will almost always be declined.
After a vehicle has been repossessed it is usually sent to an auction. In Ontario there are several well known auto auctions. With The Toronto Auto Auction (which is also known as the TAA) being one of biggest auto auctions in Canada.
Once the vehicle is at auction, the lender does their best to sell the vehicle as fast as possible. This is because the vehicle is constantly depreciating in value. So the longer the vehicle is left unsold, the larger the loss.
After the auto lender sells their vehicle at the auto auction, the proceeds from that sale are applied against the outstanding loan balance (what the debtor owes on their repossessed auto loan). The remaining balance is then considered a write off and will eventually appear on the debtors credit file under I9 status or UNPAID COLLECTION.
Once the auto loan is written off the auto lender will either attempt to collect the balance owing or sell the write off as bad debt to a collection agency. The collection agency will then take action against the debtor until they collect the outstanding debt.
If you’re a Canadian about to have your vehicle repossessed, or you have a car repo reporting to your credit file, you should check your credit and contact the auto lender to discuss your options.
While it is possible to get approved for a car loan after repossession, it is much better to avoid getting a repo in the first place.
Do you have a lingering repossession collection on your credit file? Find out by checking your Canadian credit report at Check Your Credit First Canada.