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August 2014 - A BANK COULD SEIZE YOUR CAR EVEN IF YOUR PAYMENTS ARE UP TO DATE

A BANK COULD SEIZE YOUR CAR EVEN IF YOUR PAYMENTS ARE UP TO DATE

☳ by Adam Aspilla

In a normal circumstance a bank could not seize your car purchased on credit if you comply with the terms and conditions of the Car Loan Agreement including paying the loan on time.

However, on a special situation, a bank can seize your car even if your payments are up to date. This happened to one of the writer’s clients. Said client had a bad credit rating and as a result his application for a car loan was declined. 

Desperately needed a car, one of his friends referred him to a third party who already owned a car but had difficulty making monthly payments. Instead of returning the car to the bank, the said client (buyer) and the third party (seller) made a Sale Agreement under the following terms and conditions:

First, the buyer would pay the seller a down payment agreed upon; second, upon payment of a down payment, the seller would turnover the car to the buyer; third, since the credit rating of the buyer was bad, both agreed that the buyer would simply continue paying the monthly payment (thirteen monthly payments remaining) for the balance of the car loan under the name of the seller; fourth, the monthly payments would be given to the seller and seller would be the one to pay to the bank directly; and fifth, ownership of the car is to transferred to the seller upon the full payment of the balance of the loan.

The transaction was consummated under the terms and conditions above mentioned. Seven months later, the bank seized the car from the buyer. The reason for the seizure, the seller did not pay the bank though the buyer was up to date in paying the seller of the monthly payment amount agreed upon.

Thereafter, the buyer contacted the seller, but the seller simply informed the buyer that he (seller) filed for bankruptcy. In this situation, the buyer has no recourse to recover the money he paid nor the car as the bank would sell it in public auction.

It is prudent to avoid a transaction like the above case scenario for it is risky. The risk would have been lesser had the buyer paid directly to the bank the monthly payment instead of paying it to the seller.

To be safe, buy a car the normal way, if you cannot qualify for a loan you may request your close relative to co-sign, and if not possible, simply wait for a while until you have saved enough to buy in cash, a used-car in a good running condition.

 

Adam Aspilla is a Senior Financial Counselor of the Debt Clinic of Canada Inc. and the author of the book, You Can Negotiate All Your Debts. He also writes a biweekly column, “What Matters In Life” in “Taliba Newspaper. For free initial, professional and confidential consultation, please call 905-306-7572.