Getting a car loan in Canada can be challenging if you have bad credit. A good credit score is generally considered to be over 660, and most traditional lenders will require you to have a good score for a car loan. However, there is still hope if your credit score is lower than this.

In Canada, there is what is known as a bad credit car loan. This is, as it sounds, a car loan that you can get even if you have a bad credit history. Specialized dealerships and online lenders will still offer you a loan, even if you don’t meet traditional credit requirements.

But how do you apply for one of these car loans? What steps do you need to take to ensure you get approved for a car loan, even with bad credit? We’ve taken a look at all the steps you need to take below.

What Steps Should I Take Before I Apply For a Bad Credit Car Loan?

Auto financing in Canada can be a little confusing, but if you’re trying to get approved for a loan with bad credit scores, there are a few things you should get sorted out before you begin applying. These are as follows.

Do Some Research

If you’ve got bad credit, then you’re likely to be unable to get approved for a car loan from traditional lenders like banks and credit unions. This means you’re going to need to find someone who will lend to you with a poor credit report.

Thankfully, Canada is home to plenty of specialized lenders who will still take the risk and offer financing options to those with poor credit history.

Prove Your Financial Stability

Getting up-to-date financial statements in order is a great way to prepare yourself for the application process. And, as someone with bad credit, you can use these financial statements to prove you can keep up with monthly payments.

Bad credit lenders are likely to look at factors outside of your credit history to prove that you can meet the monthly payments to pay off the loan amount. Ensure everything is in order and show that you make timely and regular payments on any debt or other loans you have too.

Set a Budget

Before buying a car, you need to know how much you can and want to spend. This is where a budget comes in. One of the handy things about bad credit car loans is that they can help improve your credit score, provided you pay on time each month. So, you need to make sure that you can meet the monthly amount.

To set a budget, consider the car you want and factor in all other additional costs, including interest fees, repairs, registration, and car insurance.

Save a Down Payment

A down payment is usually required, no matter the type of car loan you’re going for. However, if you have bad credit, offering up a bigger down payment than is required may improve your chances of getting approved. If you can wait a few more months before buying a car, consider taking the time to save up a larger down payment.

Consider a Co-Signer

A co-signer is always going to be a bonus when applying for a car loan. A co-signer takes on responsibility for the loan should you not be able to pay it, and having one improves your chances of getting approved for a car loan.

If you’ve got someone willing to take on this responsibility for you, then it can make getting a car quicker and easier. It may even help reduce the interest rates on the loan.

How to Apply for a Bad Credit Car Loan

The application process for a bad credit car loan is very similar to that of a regular car loan. You simply need to complete the application online and wait for approval. For all applications, there are some personal documents that you will need. We have highlighted them below.

Documents You Will Need for a Bad Credit Car Loan Application

  • Proof of employment – Since a car loan is a large sum of money, all bad credit car loan lenders will require you to have proof of stable employment. This means offering a history of steady income each month, like pay stubs or paychecks from the past few months.
  • Proof of income, assets, and liabilities – A lender may also ask for your latest bank statements, as well as any paperwork that shows existing debt, properties, and other assets. This is to get a better idea of what you can actually afford.
  • Driver’s license and proof of address – To apply for a car loan, you need to prove you’re a registered driver in your province or territory. You will also need to prove you’re a Canadian resident with a utility bill or other form of proof of address.

Costs to Consider When Applying for a Car Loan With Bad Credit

Bad credit car loans come with some additional costs that you will need to consider when applying. These are briefly summarized below.

Higher Interest Rates

Due to the nature of a bad credit loan, you are likely to pay higher interest rates. This is simply done to offset the risk of giving a loan to someone with bad credit. However, there are ways to reduce this cost. To begin with, choosing a cheaper vehicle will bring all costs down. You could also have someone co-sign the loan or pay a greater down payment.

Length of the Car Loan Term

Longer-term loans seem appealing because the monthly payments are much lower. However, it is important to understand that the longer the loan, the higher the amount of interest you will eventually pay. Bear this in mind when agreeing to terms. Remember that while a shorter loan will be more expensive, it can be paid off quickly.

Additional Fees

Bad credit car loans may come with other fees, including service and administrative fees. This is more likely when you finance your car through a dealership.

Benefits of a Bad Credit Car Loan to Consider

While bad credit car loans may seem like they have a lot of downsides, there are some incredible benefits to them too. These include the following.

Access to a Vehicle

First and foremost, a bad credit loan gives you access to a much-needed vehicle. Generally, a vehicle is required by people in Canada to get from A to B. So, being blocked from having your own vehicle due to bad credit can make things difficult.

A bad credit car loan gives you the opportunity to finance your own vehicle when others won’t give you the chance.

Having your own vehicle opens you up to opportunities, like jobs that require you to own a vehicle. It also gives you more independence.

Improves Your Credit

Even though you’re getting this kind of loan because you have bad credit, paying your monthly payments on time can actually help improve your credit score. It proves you are financially stable and can enable you to get more traditional loans in the future.


Once you have finished paying off your bad credit loan, you own your vehicle. Unlike other methods of financing a vehicle, like leasing, you will fully own the vehicle and will not have to come up with more money to buy it.

This means you can trade it in for an upgrade and a lower-interest loan, or you can continue to use it without having to meet any more monthly payments.

Final Thoughts

A bad credit car loan application requires some prep, including gathering personal documents and researching the best institutions for a car loan. Take a look at our recommendations to ensure you’re as prepared as possible before you apply.

If you’re in need of a bad credit car loan provider in Canada, then reach out to Car Loan Masters today. We’re a specialist dealership offering bad credit car loans to help you finance a vehicle, even if you’ve got poor credit.