Divorce and Your Drive: Navigating Car Finance in Canada

Going through a divorce is tough, and figuring out your finances afterwards, especially something as essential as a car, can feel overwhelming. But here's the good news: it's also an opportunity for a fresh start. When it comes to car loans and rebuilding your credit in Canada, there are clear steps you can take to get back on track and into a vehicle that suits your new life.

Your Credit Score: The Starting Point

The first thing you need to understand is how divorce might have impacted your credit score. If you had joint accounts, shared credit cards, or co-signed loans, your ex-partner's financial behaviour during or after the separation could affect your credit. Even if a court order assigns debt responsibility, creditors typically still hold both parties accountable until the debt is paid or refinanced.

• Get Your Credit Report: Order a free copy of your credit report from Equifax and TransUnion, Canada's two main credit bureaus. Review it carefully for any errors or accounts you weren't aware of.
• Identify Joint Debts: Note any car loans or other debts you shared. These are critical when planning your next steps.
• Monitor Your Score: Keep an eye on your credit score. Many banks and financial apps offer free credit score monitoring now.

What Happens to the Jointly Owned Car and Loan?

If you and your ex-partner owned a vehicle together with a joint loan, this is often one of the trickiest parts. You generally have a few options:

• One Person Keeps the Car: If one of you wants to keep the car, they'll typically need to refinance the loan solely in their name. This removes the other person's responsibility for the debt. The person keeping the car must qualify for the new loan on their own.
• Sell the Car: If neither of you wants the car, or if refinancing isn't feasible, selling the vehicle is an option. The proceeds would then be used to pay off the outstanding loan. Any remaining equity would be split as per your divorce agreement, or if there's a shortfall, you'd both be responsible for covering it.
• Buy Out Your Ex: If you want to keep the car, but your ex-partner's name is on the title and loan, you might need to buy out their share of the equity (if any) and refinance the loan into your sole name.

It's crucial that your divorce agreement clearly outlines who is responsible for the car and its associated loan. However, remember that the lender isn't bound by your divorce decree - they care about who signed the original loan agreement.

Rebuilding Your Credit for a New Car Loan

Even if your credit took a hit, it's absolutely possible to rebuild it. A strong credit score is key to securing favourable interest rates on a new car loan.

• Pay Bills on Time: This is the single most important factor. Set up automatic payments for all your bills.
• Reduce Debt: Focus on paying down any outstanding debts, especially high-interest ones.
• Secured Credit Card: If you're struggling to get approved for traditional credit, a secured credit card can be a great tool. You provide a deposit, which becomes your credit limit, and using it responsibly helps build your credit history.
• Small Loans: Consider a small, manageable loan from a reputable lender, like a credit-builder loan, and pay it back diligently.
• Become an Authorized User: If you have a trusted family member with good credit, they might add you as an authorized user on one of their credit cards. This can help, but ensure they manage their card responsibly.

Getting Approved for a New Car Loan

Once you've started to stabilize your finances and credit, you can look into a new car loan. Here's what lenders in Canada typically look for:

• Stable Income: Proof of consistent employment and income is paramount.
• Debt-to-Income Ratio: Lenders assess how much of your monthly income goes towards debt payments. A lower ratio is generally better.
• Credit History: They'll review your credit report for payment history, types of credit, and length of credit history.
• Down Payment: A larger down payment reduces the amount you need to borrow and can significantly improve your chances of approval, especially if your credit is still recovering.

Don't be afraid to explore options with different lenders. At SkipCarDealer.com, we work with a network of Canadian lenders, including those who specialize in helping people with varying credit situations. This means you have a better chance of finding a loan that fits your unique circumstances.

Budgeting for Your Next Ride

Before you even start looking at cars, create a realistic budget. Consider not just the monthly loan payment, but also:

• Insurance: Premiums can vary significantly based on the car, your driving history, and where you live.
• Fuel Costs: Think about your daily commute and fuel efficiency.
• Maintenance: All cars need regular servicing and occasional repairs.
• Registration and Licensing: Annual fees are part of car ownership in Canada.

Being clear on your budget will help you choose a vehicle and a loan term that you can comfortably afford, preventing future financial stress.

A Fresh Start is Within Reach

Divorce is a major life transition, but it doesn't have to put the brakes on your ability to secure reliable transportation. By understanding your credit, managing existing car debt, and proactively rebuilding your financial health, you can absolutely get approved for a car loan that works for you. Take it one step at a time, and remember that many Canadians have successfully navigated this path before you. Your new chapter, and your new drive, are waiting.