Going through a separation or divorce is tough, and untangling your finances adds another layer of stress. When a car loan is involved, it can feel even more complicated. You might be wondering what happens to your current shared loan or how you can possibly get a new one on your own. Let's break down exactly how it works in Canada.

What Happens to a Joint Car Loan During a Separation?

If you and your former partner co-signed for a car loan, you are both legally responsible for the entire debt. This is a critical point that many people misunderstand. In Canada, joint loans are typically 'jointly and severally liable'. This doesn't mean you're each 50% responsible; it means you are both 100% responsible for the full amount until it's paid off.

If your ex-partner agrees to make the payments but misses one, the lender can and will come after you for the money. Those missed payments will also damage both of your credit scores. An informal verbal agreement means nothing to the bank.

You generally have three options to resolve a joint car loan:

• One person keeps the car and refinances: The person keeping the vehicle applies for a new loan in their name only. The funds from this new loan are used to pay off the original joint loan, removing the other person's name and liability. This is often the cleanest solution.
• Sell the vehicle: You can sell the car, either privately or to a dealership, and use the proceeds to pay off the loan. If you owe more than the car is worth (called 'negative equity'), you'll both be responsible for paying the difference.
• One person assumes the loan: While less common, some lenders may allow one person to formally assume the loan. This requires the person taking it on to qualify for the financing on their own, and it involves a formal legal process with the lender.

How Separation Can Impact Your Ability to Get a New Loan

Getting a new car loan on your own is absolutely possible, but you need to be aware of how the separation affects a lender's decision. They will look at a few key things:

• Your Credit Score: Any missed payments on the previous joint loan during the turmoil of the separation will have a negative impact. It's crucial to protect your credit rating by ensuring all joint payments are made on time until the loan is formally resolved.
• Your Income: You are now applying based on a single income. Lenders will calculate your debt-to-income ratio to ensure you can comfortably afford the new monthly payment on your own.
• Existing Debt Obligations: Until the old joint loan is paid off and closed, it still shows up as a liability on your credit report, which can make it harder to get approved for new financing.

Steps to Getting a Car Loan After Your Separation

Feeling overwhelmed? Don't be. Taking a structured approach can make the process much smoother. Here's what to focus on.

1. Check Your Credit Report

Before you do anything else, get a copy of your credit reports from both Equifax and TransUnion Canada. Review them carefully to see where you stand. Look for any errors and check the status of all joint accounts. This knowledge is your power.

2. Resolve the Old Joint Loan

A lender will be hesitant to give you a new loan while you're still legally tied to an old one. Prioritize refinancing, selling the vehicle, or formally transferring the old loan. Getting a clear 'paid in full' letter or a release of liability is a huge step forward.

3. Create a Realistic Single-Income Budget

Figure out what you can truly afford. Tally up your new monthly income and subtract all your expenses (rent/mortgage, utilities, food, support payments, etc.). What's left over will give you a clear idea of a manageable monthly car payment. Lenders need to see stability and proof you can handle the payments.

4. Gather Your Documents

Being prepared makes you look like a reliable borrower. Have these ready:

• Proof of income (recent pay stubs, T4 slip, or a letter of employment)
• Proof of residence (a utility bill or bank statement)
• Your separation agreement, especially if it clearly outlines who is responsible for which debts.

5. Save for a Down Payment

A down payment is your best friend when applying for a loan with a changed financial profile. It reduces the amount you need to borrow, which lowers the lender's risk and can result in a better interest rate and a lower monthly payment for you. Even a small amount can make a big difference.

Navigating this process during an already difficult time is challenging, but it's also a fresh start. By taking these deliberate steps, you can secure the financing you need and drive forward into your new chapter with confidence.