Buying a car is a necessity for many people in Canada. Indeed, the majority of people rely on a car to get them from A to B daily. But buying a car can be difficult for your bank balance. After all, cars are not cheap! For this reason, many people choose to take out a vehicle loan.
Like any personal loan, there are a number of criteria that you need to meet before you can be approved for a car loan. One of these is having a good credit history. If you’ve got blemishes on your credit report, you may find getting approved for a loan is much more difficult–particularly with traditional lenders like banks and credit unions.
However, while bad credit scores can impact your chances of getting approved for a loan, there are other options. One of these options is to use a bad credit car loan.
In this article, we’re going to take a closer look at what a bad credit loan is and how it can benefit you.
What is a Bad Credit Loan?
A bad credit vehicle loan is an auto financing solution for people who need a car but cannot get approved for a traditional car loan. Traditional lenders, like banks and credit unions, often require borrowers to have a credit score that exceeds 660.
Bad credit loans are like these traditional loans, except lenders will overlook a bad credit history. Instead, they will look at other criteria and offer you better chances of getting approved. You can often find bad credit loans at specialist car dealerships and online lenders.
It is important to note that while bad credit loans are a great way for everyone to finance their much-needed vehicles, some lenders may take advantage of those with bad credit. Be wary of lenders who make you feel like they are your only option.
Untrustworthy lenders may lock you into longer loan terms, higher monthly payment amounts, and even higher interest rates, without you realizing that there are other options out there.
Benefits of a Bad Credit Car Loan
There are plenty of benefits to taking out a bad credit loan. We’ve highlighted a few of them below.
Access to a Vehicle
A bad credit loan is, first and foremost, an incredible opportunity to get financing and access to the vehicle you need. For people with bad credit, this can feel like a miracle. It means you finally have the means to purchase a vehicle for yourself.
Having your own vehicle means more independence and increased mobility. It could even open up job opportunities where your own vehicle is a requirement.
Improving Your Credit Score
After a period of bad credit, you’re probably looking for ways to improve your credit. A bad credit loan can do this for you. Every time you make a timely payment on your loan, you rebuild your credit just a little.
Making regular and timely payments on any kind of loan is a really easy way to boost your credit score and prove that you are financially stable. It opens up the chance of being able to take out a more traditional loan in the future.
Flexibility
Some bad credit auto loans come with flexibility.
Flexibility is perfect for those in different financial situations. If you’re struggling, you may be able to negotiate to make your situation a little easier and find a loan structure that works best for you and the lender.
Potential for Refinancing
Another way that taking out a bad credit loan can have a positive impact on your future is by giving you the option of refinancing. This means that once you have rebuilt your credit score and become more financially stable, you can refinance and alter the loan terms to something more favourable.
This could mean lowering your monthly payments, securing a better interest rate, or even having the chance to upgrade your vehicle. Check with your lender to find out if refinancing is an option for you.
Why Should You Consider a Bad Credit Loan?
Canada is a great place to find specialized lenders, which means you’re always going to have lots of choices when choosing a bad credit car loan. But why should you choose one in the first place?
We’ve highlighted the benefits of this kind of auto loan for those with bad credit, but what is the benefit of choosing this kind of loan over another financing option?
Bad Credit Loans Vs. Leasing
Leasing is another financing option for those looking to purchase a vehicle in Canada. It is important to note that dealerships who offer leasing tend to require a credit check too, so, those with bad credit may find it harder to get approved for a lease, anyway.
Leasing is an easy way to get yourself a vehicle, and it often offers lower monthly payments than a loan and access to newer vehicles. However, at the end of the leasing period, you have no equity in your car unless you choose to buy it.
In addition, there are mileage restrictions and additional fees that crop up when you lease a car. When you buy a car using a bad credit loan, you own the car once you have paid off the loan, and there aren’t any restrictions on mileage.
Bad Credit Loans Vs. Secured Loans
A secured loan is a loan you take out against an asset of value. This means that you get lower interest rates as the lender’s risk is reduced by the asset. A secured loan can be used to purchase a vehicle and is easier to get with bad credit. However, it does have several drawbacks.
To begin with, if you default on payments for a secured loan, the lender can repossess the asset you have used as collateral.
There are other requirements for secured loans, too, including possible insurance costs and higher down payments. You should consider these before choosing this solution.
Bad Credit Loans Vs. Cash Payment
While cash payment is a great option when buying a car, not many people can afford it. It means you immediately own your car and cut out the middleman, but new and used cars are pretty expensive. Additionally, a bad credit car loan is a good way to rebuild your credit. You don’t get this with a cash payment.
Final Thoughts
Bad credit car loans have lots of benefits for people who have bad credit. They give you the option of owning a vehicle and rebuilding your credit, and they give you access to much-needed financing for the vehicle.
If you’re looking for a bad credit loan in Canada, then look no further than Car Loan Masters. As a specialist lender, we can offer you a car loan, even with a bad credit history.
Ready to get started? Get in contact with us now.