Going through a separation or divorce is one of life's most stressful events. Amidst all the emotional and logistical challenges, figuring out shared finances, like a car loan, can feel overwhelming. It's a common question with big financial implications: who is responsible for the car payments?

Understanding Joint Car Loans During a Divorce

If you and your former partner signed a car loan together, you are in a 'joint' loan. In the eyes of the lender in Canada, this means you are both 100% responsible for the full debt until it's paid off. It doesn't matter who drives the car or what your separation agreement says. If a payment is missed, the lender can pursue both of you, and it will negatively impact both of your credit reports. This is the most critical fact to understand. A clean financial separation is the best way to protect your credit future.

Your Main Options for an Existing Joint Loan

To untangle yourselves from a joint auto loan, you generally have three options. The goal is to get one person's name off the loan so their credit is no longer tied to the vehicle.

• Sell the Vehicle: This is often the cleanest solution. You sell the car, use the proceeds to pay off the loan completely, and close the account. If there's any money left over, you can split it. If you owe more than the car is worth (called negative equity), you'll need to agree on how to pay the difference.
• One Person Refinances the Loan: If one person wants to keep the car, they can apply for a new loan in their name only. This new loan pays off the old joint loan, effectively 'buying out' the other person. The lender will assess the applicant's individual income and credit score to approve them for the new loan.
• One Person Assumes Payments (Not Recommended): Sometimes, couples agree that one person will keep the car and just continue making the payments on the joint loan. We strongly advise against this. If they miss even one payment, your credit score will be damaged. It leaves you financially vulnerable and tied to your ex-partner.

How Divorce Can Affect Your Credit Score

The act of getting a divorce does not directly lower your credit score. However, the financial changes that happen during and after can have a significant impact. Missed payments on any joint accounts (mortgages, credit cards, car loans) are the biggest culprits. Closing joint accounts can also sometimes cause a temporary dip in your score. That's why it's so important to separate your financial ties as cleanly and quickly as possible to protect your individual credit rating.

Getting a New Car Loan After a Divorce

Needing a new vehicle after a separation is very common. While your financial situation may have changed, getting approved for a loan is absolutely possible. Lenders will be looking at your new, individual financial picture.

Here's how to prepare:

• Know Your Credit Score: Get a free copy of your credit report from Equifax or TransUnion Canada. Check it for any errors and see where you stand.
• Confirm Your Income: Lenders will want to see proof of stable income. Gather recent pay stubs, a letter of employment, or tax documents (like a T4).
• Create a Budget: Your household income has likely changed. Figure out what you can realistically afford for a monthly car payment, keeping insurance and fuel costs in mind.
• Consider a Down Payment: Having a down payment reduces the amount you need to borrow and shows the lender you have financial stability, increasing your chances of approval.

What If My Credit Isn't Perfect?

It's completely normal for credit to take a hit during a major life event like a divorce. Don't panic. Many lenders in Canada specialize in helping people in these exact situations. They look beyond just the credit score and consider factors like your income stability and the size of your down payment. A divorce doesn't have to stop you from getting the reliable vehicle you need to move forward.