Can you return a financed car back to the bank?

Posted on 5 December 2022

Written by Gillian Goldblatt

For most Canadians, a car is an essential for day to day life, whether it is for commuting, for leisure, or for seeing family and friends. A vehicle is also one of the most expensive purchases any of us will make. Although a car can be very helpful, it is a large financial commitment, particularly once you consider the interest rate for financing it too. If your car debt becomes too much and you struggle to make your payments, your lender could repossess your vehicle to make up for their losses. So, what if you realize you cannot afford your car? Or, what if the car is not quite what you expected, and you do not want it any more? Is it possible to return it? In this article, we answer ‘can you return a financed car back to the bank?’, and share all you need to know if you are struggling to pay for your car.

Why would you want to return a financed vehicle?

Of course, nobody wants to lose their vehicle if they can help it. There are, however, some reasons why you may wish to return your financed car after purchasing it, including the following:

  • Making your car loan payments is proving difficult, and you are finding yourself in car loan debt
  • You want to avoid involuntary repossession
  • You are not happy with the vehicle you purchased
  • You believe you paid too much for the vehicle and think you can find a better price elsewhere
  • You do not need the vehicle any more
  • You have changed your mind on the vehicle

Can you return a financed car back to the bank?

Unfortunately, returning a car you cannot afford is not quite as simple as returning a purse to the store. If you purchased a car from a dealership, the chances are you will be unable to return it for a refund. Most lenders do not accept returns in any case. This is because as soon as you drive your vehicle off the lot, it depreciates in value – particularly if it is brand new. This would mean that the lender would need to accept a loss if they were to agree for you to return it. There may be a few exceptions to this rule depending on your lender. If, for instance, you were not able to test drive the car before purchasing it, and it was bought on finance, you may be able to return it. If you quickly realize after purchasing your car on finance that you cannot afford the loan payments, your dealer may consider taking back the vehicle.

What is voluntary repossession?

If you find that you are facing financial difficulty and it is proving problematic for making your car payments, you may be able to return your car via voluntary repossession. Voluntary repossession is the process of voluntarily giving up your vehicle before you face other consequences, like bankruptcy. It differs from involuntary repossession, whereby the borrower does not wish to lose their vehicle, but where the lender has the right to repossess it in order to recoup their losses from missed payments. In order to return a car via voluntary repossession if you cannot afford to make your car payments, you can ask your lender to take back the car. This can prevent you from facing involuntary repossession. While it may seem pretty straightforward, repossession does not always cover the entire outstanding loan. The lender will often sell the vehicle to make back their losses – this amount is then deducted from what you owe. If there is still some outstanding debt owed, you will need to pay the difference.

What are the benefits of voluntary repossession?

As well as proving less embarrassing than having your car towed in a involuntary repossession, voluntary repossession has a number of other benefits:

  • Avoid additional fees. If your car is repossessed, you will need to pay a fee for the repossession company to tow the vehicle away from you. This could happen at any point without prior notice.
  • Maintain a relationship with the lender. As you will be returning the vehicle of your own accord, your lender will be more likely to deal with you in the future, provided you can repay your car loan.
  • You will not have to deal with collection agencies. The impact of a repossession may not be so bad if you miss fewer payments via a voluntary repossession. It also means you can avoid collection calls and threats of a wage garnishment.

Does a voluntary repossession affect your credit?

Voluntary repossession will have a negative impact on your credit, as it suggests that you are unable to cope with your payments. A repossession – whether voluntary or involuntary – is considered as a default on a loan. This will be noted on your credit report, which could hurt your credit score. Generally speaking, when you default on a loan or face a repossession, it will remain on your credit report for seven years. At Spergel, our experienced Licensed Insolvency Trustees can assist you when it comes to rebuilding your credit score. There are some other drawbacks to returning a financed car to the bank. This includes cancellation fees for leaving the agreement early where applicable. You will still owe a balance too if the lender is unable to sell the vehicle at a figure that covers your outstanding loan.

How can you go about returning a financed vehicle in Canada?

Firstly, you should contact your lender to see if they will allow you to return your financed vehicle. Your lender may even agree to arrange a payment plan to help you through your financial challenges. They will likely try to help if you have found yourself out of work, had your working hours reduced, or are unable to work due to a health issue. If your payment history has been mostly on time, they will be more inclined to help you. They may allow you to skip a couple of payments and add them onto the end of the loan to provide you some temporary financial relief. Alternatively, they may extend the term of your loan to give you more time to repay your loan and reduce your monthly payments. Do note that this assistance will only help you temporarily – if your financial problems are longer term, it will not help. Voluntary surrender can help to resolve your payment challenges more permanently.

Alternative options to returning a financed car back to the bank

If returning your financed car to the bank is not an option or your lender will not allow you to return your car, there are some other options:

  • Refinance your car loan. You may be able to save money by opting for a different loan, ideally with a lower interest rate. This should help to make your car payments much more affordable. Extending your loan term can also help to reduce your monthly payments, although it may mean you have more interest overall.
  • Trade in your vehicle. Your dealer may allow you to trade in your car for a different model that is more affordable for you. Do note there may be some penalties for breaking out of your current car loan, but it could pay off longer term.
  • Sell your car. If your lender will not allow you to return your vehicle, you may wish to sell it. This money can then go towards repaying your car loan debt.

Returning a financed car to the bank is never easy. You do have options when it comes to your car loan and no matter how bad you may feel your financial situation is, there is always a solution. Book a free consultation with an experienced Licensed Insolvency Trustee at Spergel – we are here to help you, just as we have with over 100,000 Canadians. Reach out now to learn more about your options.

Gillian Goldblatt

Gillian Goldblatt

Gillian Goldblatt is a Chartered Professional Accountant and Insolvency and Restructuring Professional. She is also an award-winning LIT (Licensed Insolvency Trustee) and Vice-Chair of the Ontario Association of Insolvency & Restructuring Practitioners Board. As Spergel's resident expert on debt consolidation and financial literacy, you can find Gillian being interviewed regularly on popular Canadian news programs when she's not at the office helping individuals and businesses get back on track.

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