The current average credit score in Canada is 672. While that’s not horrible, to find yourself in the “good” credit range you need to have at least a 713 score. Does this affect much if you’re not applying for a mortgage or personal loan?
Yeah, actually, it affects a lot. For example, it can be tough to get approved for a car loan with bad credit. But it’s not impossible.
In this quick guide, we’ll show you how to improve your chances of getting approved for a car loan with bad credit. Then, we’ll walk you through your options for bad credit car loans so you can find the best loan for your needs.
Keep reading to learn more!
Get Approved for a Car Loan With Bad Credit
What Is Considered Bad Credit in Canada?
First of all, let’s talk about what bad credit even means. Both of the main credit bureaus in Canada, Equifax and TransUnion, have their own credit score models. Both go from 300 to 900.
What does it mean to have bad credit in Canada, then? Well, if your credit score is between 300 and 659 then you have “bad” or “poor” credit. Typically, you’ll need a credit score of at least 660 for lenders to qualify you as having “good” credit.
Is this a big deal? It can affect your ability to get a car loan, yeah. If your credit score is below 660 then you’re at a disadvantage because banks, lenders, and landlords consider you a liability for lending money.
This means that you are less likely to get loans, and if you do, they will have higher interest rates. After all, a good credit score can save you a lot of money on interest payments in the long run. And who doesn’t want to save money?
However, don’t despair. There are ways you can get bad credit financing. We’ll get to that in just a bit.
What Credit Score Do You Need for a Car Loan in Canada?
If you’re thinking of purchasing a car, you might be wondering what credit score you need to qualify for a loan. In Canada, there is no one-size-fits-all answer to this question, as lenders will consider a variety of factors when determining whether to approve a loan.
However, most experts agree that a score of 650 or higher is generally considered to be “good” credit and banks may favor customers with good credit scores. So if your score is in this range, you should have no problem getting approved for a car loan.
Of course, the higher your score, the better your chances of getting approved and qualifying for a low interest rate, though these days, a good credit score is not essential to get approved. More and more non-traditional lenders are offering low credit score loans.
Ultimately, if you’re aiming to get the best possible deal on your car loan, it’s important to review your credit report before you start your auto loan search. This way, you’ll have an idea of what loan products and interest rates are available to you.
3 Steps to Take Before You Apply for a Car Loan With Bad Credit
If you have bad credit, there are a few things you can do to increase your chances of getting approved for a car loan. Before we dive into how to shop for a car loan with bad credit, walk through these steps.
1. Pay Off Debt
You should try to pay off as much debt as possible before applying for the best auto loans. The less debt you have, the better your chances of being approved for a loan.
This is because lenders will look at your debt-to-income ratio when considering your loan application, and the lower your ratio, the better your chances of getting approved.
So, before you start shopping for a car, take a close look at your budget and see how much you can reasonably afford to put toward paying down your debts.
2. Gather Information About Your Income
Before you begin the process of applying for a car loan with bad credit, it’s important to gather information about your income. This will include your current salary, any other sources of income, and your expected income for the next year.
This information will help lenders determine whether or not you can afford the loan.
In addition to your income, you’ll also need to provide information about your employment history and your current financial situation. Be sure to have this information available when you begin the application process.
3. Consider Saving for a Bigger Down Payment
One of the best things you can do when applying for a car loan with bad credit is to consider saving more cash for a larger down payment.
A larger down payment will reduce the amount you need to borrow, and may also lead to a lower interest rate on your loan. This will show the lender that you’re serious about getting your finances in order and that you’re willing to make sacrifices to improve your credit score.
Plus, the larger down payment will give you more bargaining power when it comes to negotiating the terms of your loan.
How to Shop for Bad Credit Car Loans
While there are many ways to finance a car, people with bad credit often have difficulty securing a loan. Fortunately, there are a few things that you can do to improve the chances of getting approved for a bad credit car loan.
Understand Bad Credit Financing
Bad credit car loans are a type of financing specifically designed for people with bad credit. If you have bad credit, it means that you might have a history of making late payments or skipping payments altogether. This means lenders can view you as potentially riskier to lend to.
This can make it difficult to get approved for a loan from a traditional lender. However, there are plenty of bad credit lenders in Canada that can help you get the financing you need to buy a car.
It’s important to know that bad credit car loans generally come with higher interest rates than traditional loans. This means that you’ll end up paying more for your vehicle in the long run.
However, if you’re willing to shop around and compare rates, you can still find a good deal on a bad credit car loan.
Additionally, it’s important to be aware of the fees associated with bad credit financing. These can include an origination fee, a higher down payment, or a higher monthly payment. Be sure to ask about these fees upfront so that you can budget accordingly.
Compare Interest Rates for the Best Auto Loans
If you’re looking for the best possible interest rate on your auto loan, it’s important to compare interest rates from different lenders. By shopping around and comparing rates, you can make sure that you’re getting the best possible deal on your loan.
Additionally, it’s important to keep in mind that interest rates can vary depending on your credit history. If you have bad credit, you may not be able to get the lowest interest rate available.
However, if you shop around and compare rates, you may be able to find a lender who is willing to work with you and offer you a competitive interest rate.
Consider Bringing a Co-Signer
If you have bad credit, you may need to bring a co-signer with you when you apply for a loan. A co-signer is someone who agrees to make the payments on your loan if you can’t. This can be a family member or friend.
Keep in mind that if you default on your loan, the co-signer will be responsible for the payments. As such, it’s important to choose a co-signer who is financially stable and who you trust to make the payments if necessary.
What Is the Bad Credit Loan Approval Process?
If you’re looking to buy a car with bad credit in Canada, the approval process can be a bit of a mystery as it’s still seen as somewhat uncommon compared to the traditional auto loan process.
First, you’ll need to find a lender who is willing to work with you. This may require some shopping around, but it’s worth it to get the best rate possible.
With CarsFast, we’ve made this part of the process easy for you with a simplified search and application process. We have access to over 350 dealerships nationwide that are willing to work with anyone regardless of their credit history.
Through our quick and simple online platform, you’ll submit an application. Be sure to include all the required information, such as your income, employment history, and details of your financial situation.
Once your application is approved, you will sign the loan agreement. Be sure to read the fine print carefully before signing anything!
Apply for an Auto Loan Online With CarsFast
We understand that finding the right car loan can be difficult and time-consuming. That’s why we’ve created a network of dealers across Canada that can help you get approved for financing in minutes.
If you’re looking for a car loan with bad credit, our team of experts can assist you in getting the loan you need to buy the car you want. So don’t wait any longer, apply for an auto loan online with CarsFast today! Click here to start the easy application process.