Big Truck Loans Can Mean Big Debt Headaches
The west coast of BC is a great place to live. Outdoor opportunities are endless and it can be super useful to have a truck. Whether you are pulling a boat in Prince Rupert or going camping near Campbell River, a truck is typically the vehicle of choice. In addition, sometimes work requires you to have a truck. However, as with many things in life, things can get out of hand. We have seen many financial situations where big truck loans have led to big debt headaches.
As we go about our lives we all face a cost for transportation. Many times vehicles can become very personal and you can develop an attachment. There can also be an element of peer pressure that requires you to have a certain type of truck that may result in having more truck than you need.
Have you ever sat down and actually calculated the total cost of your transportation? The cost of transportation is often in the top three of the highest expense categories for a month.
Cost of Transportation
There is much more to the cost of transportation than what you might initially think. Here are some things that contribute to that cost:
- Fuel – which seems to go up every year
- Insurance – hopefully, in BC, we will see this expense drop slightly this year
- Repairs and maintenance – this can range from oil changes to new tires to larger problems.
- Interest on a truck loan – in addition to the interest, a truck loan payment also has a portion that is paid towards the principle of the debt.
- The combination of the two equal the monthly vehicle loan payment that you are making.
- Depreciation – this is a concept that represents the decrease in value of the truck that occurs each year. The saying that a truck drops in value as soon as you drive it off of the lot is true. Most trucks drop in value a couple of thousand dollars per year if purchased new.
When you add all of these costs together the total can easily exceed $1,000 per month.
Watch out for Bad Truck Loans
If you are in the market for a vehicle, you may be wondering whether you should get a truck loan or a car loan to make it happen. However, before you sign on the dotted line we would encourage you to really consider a few things. In particular, if your credit is not very good, you may be forced into agreeing to a bad credit auto loan.
We have seen truck loan interest rates range from a modest rate to as high as 20%! This can result in a huge cost to you over the life of the loan. Therefore, it pays to shop around a little bit for an interest rate that is reasonable.
Another way to get into trouble with truck financing is to agree to a bad truck loan that lasts too long. Lenders are now willing to finance over 72 months which is six years. By the end of that loan, you may be paying a very high payment for a truck that is not worth that much.
Big Debt Headaches
Getting stuck in a bad truck loan can lead to big debt headaches. The large monthly payment can result in not having enough funds to cover other living expenses. As a result, you might be forced to put too many purchases on a credit card or not pay your income tax installments.
This can lead to carrying a growing amount of unsecured debt that often has high-interest rates and puts you into the fast lane for a debt headache.
If you are paying $700 to $1,000 a month just for the truck loan payment then you are a candidate for a big debt headache. In contrast, other auto loans are available for as little as $200 per month.
Vehicle Repossession – Seize or Sue
One possible option to get out of a bad truck loan is to let the truck get repossessed by the lender. Each province in Canada sets its own law when it comes to vehicle repossession. In BC, that law is set out in Section 67 of the Personal Property Security Act. In that Section, the lender has the ability to seize the truck (or car) or sue for what is owing but not both.
If they seize the truck they cannot sue for the shortfall.
Here’s how it works. Once you miss a payment or two the bank may call to see what is happening and ask you to make a payment. There is nothing wrong with telling them the truth that you won’t be continuing with the payment.
The bank will next have to make the choice to either seize or sue. They may send out a bailiff to take a look at the truck. We would recommend cooperating with the bailiff and return their calls. If they decide to take the truck, take your license plates off when the bailiff comes so that you can cancel your insurance at that point.
We would also recommend that you don’t deliver the vehicle to them as this may be viewed as voluntary surrender. Rather, make them come and seize it. In our experience, if the truck is not too old, they will always come and seize it.
A truck repossession will hurt your credit rating but life goes on. Usually, future vehicle loans are fairly reasonable to qualify for but you will have to watch out for the interest rate!
If your bad truck loan has already created a debt headache of other debts, you may need to take further steps than just letting the truck get repossessed.
Filing a federally regulated Consumer Proposal has become the most popular way in Canada to consolidate unsecured debt into one manageable monthly payment.
Please contact us at one of our convenient locations for a free, confidential assessment. We can have this meeting either via phone, online or in person. We will take the time to explain your options to get rid of that headache.