An additional 153,000 consumers missed payments on credit products in the last quarter of 2023, according to Equifax Canada’s latest Market Pulse Consumer Credit Trends and Insights report.

Beyond mortgage and credit card delinquencies, the non-bank auto sector and used car bank loans also show rising arrears levels, according to the report.

“Factors such as high cost of living, inflation, credit card payments, and mortgage renewal worries are coming at consumers right now,” said Rebecca Oakes, Vice President of Advanced Analytics at Equifax Canada, in a press release. “Budgets have been pushed to the limit for some. There’s no doubt Canadians are feeling the financial pinch right now.”

If you’re struggling to make your car payments, know that you are not alone. There are options out there to help ease the financial strain.

Don’t avoid your lender, contact them immediately

While admitting that you’re struggling to afford your car payment might seem incredibly scary, being proactive will benefit you. Your lender will notice if you miss a payment, so it’s in your best interest to let them know as soon as payments become difficult.

Most lenders are willing to find a solution that’s beneficial for both sides. After all, they don’t want you to default on your loan.

Schedule an appointment with your lender and be upfront about your situation. Bring documents that show why you’re having a difficult time with payments. For example: it could be for unexpected home repairs, a severance letter from your job, a medical bill, etc. That way, you can discuss temporary options to make your payments more manageable and work together to find a solution.

Explore loan relief options

Deferment

Deferring your loan means skipping payments for a month or two. Deferment is a temporary strategy that can be helpful if you are struggling to make payments. Some lenders may offer it as an option to help you get back on your feet. But not all lenders will extend it. Nonetheless, those that do will want to see proof of your financial situation, so be ready to discuss it and back it up with documentation.

Pros of deferment:

Can provide temporary relief while you get back on your feet.
Doesn’t impact your credit score, if organized in advance of delinquency.

Cons of deferment:

Skipped payments are added to the end of your loan term. So, if you had 8 months of payments left and deferred for one month, you would have 9 months of payments.
The longer you defer your loan, the more interest you’ll owe.

Restructuring or refinancing

If deferment isn’t an option, ask about restructuring or refinancing your loan. Restructuring often involves extending the term of your loan to lower your monthly payments. This option comes with the risk of paying more in the long run. However, if it means you can make your payments now and avoid going into a debt spiral, then it’s likely worth it.

Refinancing involves negotiating a new loan contract, sometimes with a new lender. Unfortunately, refinancing may come with penalty fees, and if you refinance for a longer term, you may end up paying much more in interest. Refinancing also requires a hard inquiry on your credit and may lower your score by a few points. But if it keeps you from losing your car, it may be worth it.

Find someone to assume the loan or sell the car

If you have a lot of equity in the vehicle and can sell it, doing so may be better than defaulting on the loan. Not only can you pay off your debt, but you may also have some extra cash left over. Potentially even enough to buy another, cheaper vehicle.

If you don’t have much equity in the vehicle then the better option might be to have someone assume your loan. This means someone takes over responsibility for the loan as well as the vehicle. Make sure your contract doesn’t have a clause against transfers. If you’re unsure, contact your lender to discuss the matter further.

The person who assumes the loan will have to abide by all of the terms and conditions in your contract and have a positive credit standing. Once all of your information is aligned, you should be ready to transfer your loan and vehicle. You will lose your vehicle, but the alternative is better than going into debt or having your vehicle repossessed. Bear in mind that this option is not offered by all lenders.

How to avoid getting behind on your car loan

Ideally, you’ll consider affordability carefully when financing a vehicle, and take steps to create a safety net for yourself before signing on the dotted line. Here are tips to keep in mind for next time:

Use a conservative budget when buying a car. Opt for something cheaper or buy a used vehicle instead of a new one.
Weigh long-term costs. Compare insurance premiums and fuel efficiency when shopping for a vehicle to lower overall vehicle expenses.
Tap into your emergency fund, if you have one. These funds exist to help you avoid financial trouble — use them.
Consider purchasing loan insurance. If purchased at the type of loan approval, credit or loan insurance coverage can help maintain your loan in the event of illness, injury, disability or job loss.

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