What happens if I default on my car loan in Canada?

Defaulting on your car loan in Canada initiates a cascade of severe financial repercussions, primarily leading to the repossession of your vehicle and significant, long-lasting damage to your credit rating. When payments are missed, your lender will eventually seize the car, often without a court order, to recover their investment. This process is not free; additional costs such as towing, storage, and auction fees are typically added to your outstanding balance, exacerbating your debt.

A critical distinction across Canada lies in provincial regulations regarding deficiency balances. In British Columbia, the "seize or sue" rule applies, meaning the lender must choose between repossessing the vehicle or suing you for the outstanding debt; they cannot do both. However, in most other provinces, including Ontario, Alberta, Saskatchewan, Manitoba, and the Atlantic provinces, lenders can repossess the vehicle AND pursue you for the "deficiency balance"-the difference between what you owe and what the car sells for at auction, plus all associated costs. Given potential volatility in the used car market heading into 2025, this deficiency can be substantial, leaving you without a car but still owing a significant sum.

Why this matters: A default is reported to major credit bureaus like Equifax and TransUnion, causing a drastic drop in your credit score that can persist for many years. This severely impairs your ability to secure future loans, mortgages, credit cards, or even rental agreements, often resulting in higher interest rates and limited financial opportunities. The loss of your primary transportation also creates immediate logistical challenges. Therefore, proactive and early communication with your lender is paramount; they may offer solutions such as payment deferrals, loan modifications, or refinancing options to help you avoid default and mitigate these severe, long-term consequences.