With 15% of Canadians having bad credit scores, many of them struggle when it comes to getting loans. Credit scores are a huge factor in whether a lender decides to do business with you and, unfortunately, having a bad credit score means it’s harder to secure business.
Does that mean you’re just doomed if you want an auto loan? Not at all, but you do have to bear your bad credit score in mind and work around it.
Here are seven tips for bad credit auto loan financing.
1. Get a Co-Signer
Getting a co-signer is a great way to secure a bad credit auto loan because it provides the lender with a fallback if they don’t trust your ability to pay the loan back on time. A co-signer is someone who agrees to pay back the car loan if you fail to.
Ask your family members if they’re willing to co-sign for you. It’ll affect their credit score too but as long as you plan on paying everything back in time, it’ll only have a positive impact on you both.
2. Make a Bigger Down Payment
A big factor in auto financing is the down payment. If you’re not willing to make much of a down payment (or any at all), a lender is much less likely to make you an offer for monthly payments.
If you can, take the time to save up and make a bigger down payment. Put money aside each month until you have a decent amount.
This can also help bring down your monthly payment, which is always good. The average car payment in Canada is 20% of monthly take-home pay, so being able to bring down this further is always helpful for your finances.
3. Get Preapproved
Getting preapproved means a lender will check your file and let you know how much you can finance a car loan for, from them, meaning it takes some of the stress out of shopping for a car. You already know your budget and have the certainty you can get approved.
This is essential when you have a bad credit score, as it takes some of the unpredictability out of your hunt for a new vehicle. Many lenders offer this, so shop around to see if you can get preapproved and take some of the weight off.
4. Shop Around
One of the main things you should do when looking at auto finance loans is shop around between lenders. A lender might be unwilling to give you a loan where another lender would, and you also shouldn’t jump at the first lender that says yes. The reason for this is that the interest rate might be really high.
Make sure you thoroughly exhaust your options before you commit. While this might take more time, it’s essential to find the right loan for you and will make a world of difference in the end.
5. Look Into Second-Chance Car Loans
There are certain auto financing loans specifically made for people with bad credit who may have already been turned down for a traditional car loan. You can find these by looking around online, and you have a much higher chance of getting approved.
If you do decide to go down this route, make sure you check out the company you’re using. They should have:
- Good reviews and/or client testimonials
- Lots of experience
- A professional website
- Reasonable options
Make sure you ask all of the questions that you need to to feel comfortable in your decision. If you don’t feel like a lender is right for you, there are others to choose from.
6. Consider a Cheaper Car
If you have your sights set on one specific car and that’s making your loan more difficult, consider choosing a cheaper one. It doesn’t have to be your forever car — it can be your temporary vehicle until you’ve paid it off and built up some more credit to purchase the car of your dreams.
You may also be surprised at how a cheaper car can have many of the same features you’re looking for.
7. Improve Your Credit Score
If you have the luxury of time before you make your vehicle purchase, you can always try to improve your credit score. If you buckle down, you can usually improve your credit score over the span of a few months if you commit to good financial decisions.
Some ways to quickly improve your credit score include:
- Always paying your bills on time — if you can’t, call in advance and work something out
- Paying down credit cards so your utilization is lower
- Letting your credit history grow so you have a longer track record behind you
- Making sure you have an appropriate amount of accounts open
Sites like Experian allow you to look at your credit score and see what you need to improve on to bring it up.
Bad Credit Auto Loan Financing Doesn’t Have to be Impossible
You don’t have to give up on your auto dreams. Bad credit auto loan financing is possible — it just takes some time to work around the obstacles and put yourself in a position to get a good deal.
Get a down payment together, research the different options, and get preapproved where possible. If you can, take some time and improve your credit score too.
Looking to get preapproved for a car loan? Fill out an application today and let’s see what we can do for you. Don’t let your credit score stop you!