Getting a car loan in Canada can sometimes feel like an uphill battle. The criteria for car loans are often stringent and usually require a good credit score. So what do you do if you have bad credit?
If you’re thinking of buying a car in Canada soon, but can’t get approved for a loan because of your credit report, then we might have some answers for you.
Across Canada, there are lenders who will still offer you a car loan, even with a bad credit score. The qualification process is similar to getting approved for a car loan with good credit, but the loan terms may differ.
Below, we’ve summarized some of our top tips and tricks for getting approved for car loans with bad credit and avoiding extortionate interest rates and monthly payments.
What is a Bad Credit Car Loan?
A bad credit car loan is, as it sounds, a car loan given when the borrower has a bad credit score. For auto financing, you need a credit score of more than 660, usually. For people with poor credit history, this may be difficult and can seriously affect the loan terms.
Traditional car loan institutions, like banks and credit unions, tend to offer much higher interest rates to borrowers with bad credit. Still, in Canada, there exist a number of institutions that will overlook blemishes in your credit history. They offer what is known as a bad credit loan.
Bad credit car loans make it easier for people to finance a new vehicle, even if they have struggled with bad credit in the past. Everything from missed credit card payments to large amounts of unpaid debt can contribute to a bad credit score. If you’re working on improving your credit score, but aren’t there yet, then a bad credit loan could be the answer to your issues.
6 Tips for Getting Approved For Auto Financing With Bad Credit
When applying for auto financing with bad credit, you’ve probably experienced everything from extortionate interest rates to soaring monthly payments to long loan terms. But having a car is a necessity for most people in Canada.
If you’re wondering whether there are things you can do to make it more likely to get a car loan, even with bad credit, check out our 6 tips below.
1. Calculate the Loan Amount You Will Need Before Applying
Setting a budget and working out exactly how much you’re going to need before applying will help you find a suitable lender quickly. If you know how much you can afford in terms of monthly payments and interest fees, then you can find a lender who will meet these needs.
Remember that when you get a car of your own, it’s not just monthly payments you will need to make. You will also need to consider other expenses, like insurance, maintenance, repairs, and registration.
2. Research the Different Types of Bad Credit Loans On Offer
There are many types of lenders in Canada, including banks, dealerships, and private lenders. Do your research to find the best option for your requirements. Remember, you want to be able to trust your lender.
A bank is often considered the most trustworthy place to start your auto loan research. However, you should know that banks are the least likely to approve you for a loan with bad credit.
A dealership may specialize in bad credit loans, which is great for you. However, you need to be careful of dealerships who will take advantage of the fact that you have bad credit. They may rope you into exceptionally long contracts or demand higher interest rates while making you feel like they are your only option.
Private lenders are an excellent option if you can’t find a dealership willing to work with you. But the private lending route has some drawbacks too. There are many options, but often it is riskier to get a loan from a private lender. If you choose this option, make sure you do thorough research on who exactly it is that you’re lending money to.
3. Get Quotes From Multiple Dealers
Different dealers will give you different quotes. Quote prices depend on everything from make, model, and year to term length, payment frequency, and annual income. While quotations are a rough estimate of how much they will charge you monthly, they can give a good idea of what you’re likely to pay with each dealer.
Dealers will also have different conditions attached to their offers. Indeed, some may require you to have a cosigner, while others may expect a down payment. You should factor these into your budget and ensure you can afford them when you do your research beforehand.
4. Consider a Co-Signer
A co-signer is helpful for those with bad credit, but it comes with some caveats. The co-signer is liable for the loan if you cannot pay, so keep that in mind when asking people to co-sign a loan. Ensure that anyone you choose understands the risk of becoming a co-signer before they do so.
If you’ve worked it all out with your co-signer and they are happy to take on the risk and help you out, you may find that you have access to better loan terms and can rebuild your credit more effectively.
Additionally, a co-signer will improve your approval chances and your interest rates, making the loan slightly cheaper.
5. Consider Trading in Your Old Car
Often, you will find dealerships that allow you to trade in your old car as a down payment on a new loan. This is an excellent way to lower the cost of a new car and ensure that your old car doesn’t end up being scrapped. If your car has some resale value, consider trading it in or selling it for additional help with financing a new vehicle.
A down payment in the form of your old car may help you to get approved for a loan.
6. Save a Larger Down Payment
Many loans require you to pay a down payment. If you’ve got bad credit, you might consider saving a larger down payment to lower the interest rate and monthly repayments of your auto loan.
You can save a large down payment by selling your old car or taking your time to put aside the cash so that you’re in the best financial position possible when you apply for a car loan.
What To Do If You Still Can’t Get a Car Loan
Unfortunately, a car loan sometimes just isn’t in the cards for you right now. If this is the case, there are a few things that you can do to apply for a car loan more successfully at a later date. These include the following.
- Improve your credit: If the main obstacle to getting a car loan is your credit, then improving your credit is the first logical step. You can begin improving your credit by making timely payments on any existing debt, reducing your overall debt, and ensuring there are no errors on your credit report. You could also seek guidance from a specialist to improve your financial situation.
- Improve your financial profile: Along with sorting out any debt you may have, you can also make your overall finances better. Steps to a better financial profile could include finding a stable job with a steady income and demonstrating stability, responsibility, and budgeting to offset your bad credit history.
- Consider other loans: If you’re in desperate need of a vehicle, then you could consider other kinds of financing options. A secured loan means taking out a loan against a valuable asset that you own. They tend to have lower interest rates as your assets are used as collateral. However, they come with much greater risk, since if you default, your assets may be repossessed by the lender to cover the outstanding debt. Additionally, defaulting on a secured loan will negatively impact your credit score.
Final Thoughts
Getting approved for a car loan with bad credit can be an arduous task, but it is entirely possible. Our key tips here should help you to get approved more easily, even if you don’t have the requisite credit score for a traditional loan.
Bear in mind that you need to weigh up the pros and cons of taking out a loan with bad credit, and if you can, you should focus on rebuilding your credit and improving your financial stability before taking out a car loan.
If you’re looking for a bad credit loan in Ontario, then look no further than Car Loan Masters. We’re here to support you with financing a vehicle, even with a bad credit score.
Ready to get started? Contact our team today for more information.