Getting approved for a car loan can be a challenging process, especially for those who may have a lower-than-average credit score. Many think that having bad credit is a deal breaker for securing auto loans, but fortunately, this couldn’t be farther from the truth. Many Canadians with bad credit successfully secure financing for their vehicle purchases and are even able to use their investment to rebuild their existing core and boost their financial risk profile in the future.
At Auto Loan Hub, we know that car financing can be overwhelming without the right information on your side, and we’re here to help Canadians from all walks of life find their perfect ride. Below, we’ll discuss a few tips to successfully the auto loan process with a poor credit score. Read on to learn more!
Know Where You’re Starting From
Before applying for a car loan, it’s essential to understand where you stand financially to be prepared and know what to anticipate.
Start by obtaining a copy of your credit report from credit bureaus like Equifax or TransUnion. Reviewing your report will help you identify any issues or mistakes that might be dragging down your credit score and give you time to make some fixes before applying for a loan. In general, a credit score of lower than 600 can be considered problematic or “bad” in Canada, which can limit your loan options and result in higher interest rates for car buyers.
If you know you have lower credit or are unsure of your situation, taking the time to check gives you the upper hand and prevents any nasty surprises.
Save for a Larger Down Payment
Saving extra funds can seem like a challenge these days, but for those who can build a decent down payment of 10-20% of their loan are far more likely to receive lower lending terms and more favourable monthly payments. In the case of low credit, however, down payments can be even more important as they allow you to lower the rate of your loan and thus your perceived risk for repayment, potentially offsetting some of the difficulties otherwise faced by a poor credit score.
Consider a Co-Signer
Still need a bit of a financial boost? Consider a co-signer! A co-signer is someone with good credit who agrees to take on responsibility for your loan in the event you default on payments. Having a co-signer with good credit can help you be viewed as less of a financial risk, which in turn improves your chances of approval and potentially leads to lower interest rates.
That said, it’s crucial to make sure you choose the right co-signer. Agreeing to cover debt is no small task, and should you miss payments, both parties’ credit scores will take a hit. Always ensure that your co-signer understands the full terms of the loan and is comfortable with the responsibility.
Shop Around for Lenders
Buying a car is a big deal, and just like any other major investment in life, it’s crucial to shop around to find the right fit (and the best deal) for yourself. If you have bad credit, for example, you may encounter issues getting approved by traditional banks or face unrealistic loan terms that remove them as a potential resource. Specialized and online lenders, however, often are set up to accommodate all kinds of credit with reasonable (but still higher payment amounts) terms that make car ownership feasible.
To find the right fit for you, look for lenders that specialize in subprime loans, which are designed for individuals with low credit scores. These lenders often have more flexible requirements and are more willing to work with borrowers who have less-than-ideal credit histories.
Prepare Your Documents to Show Stability
Bad credit can stem from a wide variety of factors, from divorces to a new arrival in the country, recent employment hardships in an otherwise stable career, and plenty more. To apply for a car loan with a low credit score, it’s important to provide documentation that proves your financial stability. Key factors that lenders evaluate include proof of income, employment history, debt-to-income ratio, and more. If you are able to make a compelling case for your current financial stability, you may be surprised to learn that the car market is often more open than you think, even with poor credit.
Want to see what a potential loan may look like for you? Check our loan calculator here!
Let’s Get Started!
Getting a car loan with bad credit in Canada is challenging, but it’s not impossible. By taking the time to understand your credit score, saving for a larger down payment, exploring co-signer options, shopping around for lenders, and preparing the necessary documents, you can increase your chances of securing a loan with favourable terms and get behind the wheel of your new ride.
At Auto Loan Hub, we specialize in helping Canadians with all types of credit situations and are here to help you simplify car financing. Reach out to Auto Loan Hub today to explore your options and get on the road in no time!
