Dealing with a Joint Car Loan During a Separation

Going through a separation is tough enough without having to worry about transportation. If you and your former partner had a car loan together, untangling that financial tie is one of the first, and most important, steps. In Canada, a joint auto loan means both of you are 100% responsible for the entire debt, not just your half. The lender can pursue either of you for the full amount if payments are missed, regardless of who is driving the car. This can seriously damage both of your credit scores.

You have a few options to handle the existing loan:

• Sell the vehicle: This is often the cleanest solution. You can sell the car, use the proceeds to pay off the loan, and split any remaining money (or debt).
• One partner keeps the car: If one person wants to keep the vehicle, they must refinance the loan solely in their own name. This means they have to qualify for the new loan based on their individual income and credit. The original joint loan is only closed once the new loan is approved and paid out.
• Buy out the other partner: Similar to refinancing, one partner can pay the other for their share of the vehicle's equity (if any) and then refinance the remaining loan in their name alone.

Checking Your Financial Standing Before You Apply

Before you start shopping for a new car, it's crucial to know where you stand financially. Your ability to get a loan will now be based entirely on your own merit.

• Check Your Credit Report: Your credit score might have changed, especially if there were any missed payments on joint accounts during the separation. You can get your credit report for free from Canada's two main credit bureaus, Equifax and TransUnion. Look for any errors or accounts you need to address.
• Assess Your New Budget: Your income and expenses have likely changed significantly. Lenders will look at your debt-to-income ratio to see if you can comfortably afford a car payment on top of your other obligations like rent or mortgage payments. Figure out what you can realistically afford each month.

How to Apply for a Car Loan on Your Own

Applying for a loan by yourself is straightforward, but you need to be prepared. Lenders will be looking at your stability and ability to repay the loan without a second income to back it up.

Generally, you will need:

• Proof of Income: Recent pay stubs, a letter of employment, or bank statements showing consistent deposits.
• Proof of Residence: A utility bill or bank statement with your current address.
• A Down Payment: While not always required, a down payment is highly recommended. It reduces the amount you need to borrow, can lower your interest rate, and shows the lender you're financially committed. Even $500 or $1,000 can make a difference.

What If Your Credit Took a Hit During the Separation?

It's common for credit scores to dip during a separation due to shared financial stress or missed payments on joint accounts. Don't worry-you still have options for getting a vehicle.

If your credit is bruised, focus on strengthening your application:

• Provide a Larger Down Payment: The more money you can put down, the less risk the lender takes on. This significantly increases your chances of approval.
• Consider a Co-signer: A co-signer is a trusted friend or family member with good credit who agrees to take responsibility for the loan if you can't make payments. This can be a great help, but make sure both you and your co-signer understand the legal commitment.
• Be Realistic About the Vehicle: You might not get approved for a brand-new luxury SUV right away. Aim for a reliable, affordable used vehicle that fits your new budget. A successful car loan is one of the best ways to rebuild your credit score, paving the way for better options in the future.

Getting back on your feet after a separation is a process. Securing reliable transportation on your own terms is a major step toward financial independence and a fresh start.