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How Missed Car Payments Hurt Your Credit Score in Canada

For many Canadians, a car loan provides an easier way to afford a reliable vehicle. Taking out a loan can play an important role in helping you build credit, but you should understand what happens if you miss a payment.

If you’ve taken out a car loan, you know that making payments on time is key - especially when it comes to how it impacts your credit score. When determining your score, creditors look at how late the payments were, how much was owed and how often a payment was missed. Although most creditors will grace your first late payment, missed payments of 30 days or more will negatively impact on your credit score, regardless of your credit history.

There’s no easy way around it; the consequences of missing a car payment can be costly. But, like most financial mishaps, you can avoid skipping out on loan payments, so that your credit score isn’t affected.

Let’s take a look at the ways missing a car payment impacts your credit score and what you can do about it.

How Missing a Car Payment Affects Your Credit Score

Before you can understand how a late car payment will affect your credit score, you should know exactly when your payment is considered late. In most cases, your payment will be considered late if it is not received by the lender within 30 days after the due date listed on your statement.

While this is usually the case, it also depends on the terms of your loan contract, so make sure to review the fine print carefully to ensure you know exactly when your payment is due and how much time you have before it’s considered late. In general, if you don't pay on time, expect to incur late fees (usually a percentage) of the monthly payment amount.

In addition to incurring late fees, missing one payment by 30 days or more can cause your credit score to fall anywhere from 80-110 points - that’s pretty significant! Although it depends on the length of your credit history, your financial standing and other factors, it’s important to pay your car loan on time to not only keep your credit score in good standing.

How Long Does a Missed Car Payment Stay on Your Credit Report?

The length of time that a missed car payment stays on your credit report varies depending on the type of loan you have and the laws governing those loans in each province. Generally speaking, however, most lenders will report late payments for up to seven years after they occur - though some provinces may limit this time period.

It’s also worth noting that while the seven-year reporting period is standard, any information regarding late payments will remain on your credit file until it is manually removed by either yourself or the lender - even if seven years has passed since the incident. This means that if you do not take proactive steps to check if this information is removed, it could continue to negatively impact your credit score long after the seven year mark has been reached.

Can You Remove a Missed Car Payment From Your Credit Report?

Yes! It’s possible to remove late payment information from your credit file - the most common being negotiating with the lender directly or filing a dispute with one of Canada’s two main consumer reporting agencies (Equifax and TransUnion).

These two options are both viable methods for removing negative information from your credit file; however, these methods can only be used if the information being reported is inaccurate or incomplete (which does happen occasionally). If this is indeed the case, contact Equifax or TransUnion immediately so they can begin their investigation into the matter.

Consequences of Missing Car Payments Beyond Your Credit Score

It’s no secret that missing payments on any type of loan (including car loans) can have serious consequences for your credit score. Plus, it can be quite difficult to raise your credit score quickly. But, what many people may not understand is that missing a car payment can go beyond just affecting your credit score.

The potential consequences of missing a car payment are listed below:

1. Late Fees & Penalties

The first consequence of missing a car payment is that you will have to pay late fees and penalties. In addition, interest will continue to build on the unpaid payment. Although fees and interest rates may vary by provider, late fees are usually the first consequence of missing a car payment. This is because when you sign up for a loan, you also agree to abide by all the terms and conditions outlined in the loan agreement which includes making timely payments.

All lenders charge late fees plus interest for missed payments as set forth in their contracts with clients. That’s why it’s important to read your loan documents carefully before signing them so that you know exactly how much it will cost if you miss any payments. If this is your first late payment, your lender may waive the fees as a one time exception, as long as you continue to keep up with your future payments.

Solution: Check in with your lender to see if they are open to changing the billing due date. If so, you can ask your lender to push the payment due date back a few days (or weeks) to give you time to come up with the funds.

2. Risk of Repossession

Another consequence of missing a car loan payment is that the lender may choose car repossession. Depending on where you live, this could happen as soon as two or three consecutive missed monthly payments; however, most lenders prefer not to go down this route until several months have passed without any form of contact or payment from the borrower.

Once the lender decides to take back possession of the vehicle, they can also resell or auction the vehicle in order to recoup losses from the unpaid balance still due on the loan agreement or require full repayment before returning ownership back over to you (if possible). If the lender chooses to resell, you will still be responsible for the remaining balance of your loan if the sale price doesn’t cover the total. This can put you in an even more difficult financial situation than you may have already been, so it’s best to avoid it at all costs.

Solution: You’ll want to avoid repossession at all costs. If you absolutely cannot afford your car payment and your finances are tight, consider selling your car or trading it in for a cheaper option.

3. Difficulty Obtaining Credit in the Future

If your credit score drops due to a missed car payment, you’ll have a much more difficult time obtaining credit going forward. Your credit score reflects your ability to manage debt, so the higher your score, the better your creditworthiness appears to potential lenders or creditors.

When you miss payments, however, it tells potential creditors that there’s an increased risk associated with lending money to you, so they will likely be less willing to offer loans or other types of financing at more favourable interest rates than if your credit score was higher. As such, missing even one car payment can have long term effects on your ability to get future financing.  

Solution: You may want to refinance your car loan if you’re worried about your current loan. You’ll want to do this before you miss any payments. If you’re approved to refinance, taking out a new loan with new terms and different interest rates may work in your favour and give you more ability to manage your car payments.

How to Rebuild Your Credit After Missed Car Payments

If you’ve been in the unfortunate circumstance of not being able to make your car payment, you know how detrimental it can be for your financial future. But, there are steps you can follow to help you plan out when and how you can address any missed payments in the future, so that you can work on rebuilding your credit today.

Here are five credit rebuilding tips you should consider if you’ve recently missed a car payment:

1. Contact Your Lender

Make sure that your lender is aware of the situation and is willing to work with you in order to get back in good standing with them as soon as possible. Asking for extra time or lower monthly payments are options which could help reduce any financial burden associated with making payments on time.

2. Make All Future Payments On Time

This might sound like an obvious step but making sure all future payments are made on-time is paramount in repairing any damage done by past missed payments. This shows lenders that despite past mistakes, you are still reliable and dependable when it comes to repaying debts owed.

Additionally, if you’ve recently switched jobs and get paid on different dates, you can arrange to change the payment dates on your car loan if the current dates are no longer working for you. Most loan providers are willing to work with customers to ensure all payments are made in a timely manner.

3. Monitor Your Credit Report

If you’re worried about what your credit report looks like, or if there is any inaccurate information shown on the report, be proactive and monitor it regularly. You can use simple credit monitoring tools to ensure everything is done right and in good order.

4. Set Up Automatic Payments

Setting up automatic payments ensures that all future bills are paid without having to worry about missing a due date or forgetting altogether (something which could also lead to more late fees).

Automating payments makes it easier for both parties involved as it prevents further debt accumulation and improves your chances of getting approved for loans or other services down the road since lenders will be more confident about trusting someone who pays their bills reliably and consistently over time.

5. Build a Budget to Ensure Timely Payments

Building a budget is easy, but it’s often the most overlooked. Building and sticking to your planned budget will go a long way in making sure that you meet all of your payments on time and in full. By taking the proper steps and devoting some additional time, you can definitely set yourself up for a more successful financial future.

Avoid Late Car Payments With iCash

Missing a car payment can have serious repercussions for your financial health, but there are steps one can take towards recovering from this mistake over time. However, if you continue to find yourself unable to make timely car loan payments, consider an instant online loan from iCash. You can easily apply online and get funded via e-Transfer within minutes.

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