The Best Way to Get a Car Loan Without a Cosigner in Canada

When you apply for an auto loan but don’t qualify because of less-than-perfect credit, some lenders will tell you that you need a cosigner.

A cosigner is someone who signs your loan agreement with you and is obligated to repay the loan if you cannot. Cosigners on car loan applications are usually close friends or family members of the primary borrower. Since the cosigner has good credit, the addition of their name as a guarantor reduces the risk of lending for the financial institution and boosts your chances of approval.

However, while cosigners can strengthen an application, it’s not an option for everyone.

Fortunately, there are other options to consider...

What credit score is needed for a car loan without a cosigner?

Traditionally, any credit score over 660 is considered good, and lenders will view you as a prime credit customer. However, if your credit score falls below this number, lenders may view you as a high-risk borrower with subprime credit. Likewise, if you have no credit, you are viewed as a high risk to lenders because your reputation as a borrower has not yet been established. Subprime applicants are often asked for a cosigner (with prime credit) to reduce the perceived level of risk.

But if a cosigner isn't an option, there are other ways to secure a car loan approval. Thanks to the emergence of alternative lenders and advanced analytics, it's now easier for customers with bad credit (or no credit) to get approved for a car loan without a guarantor.

How to get a car loan without a cosigner?

It is possible to get approved for a car loan without a cosigner, even if you have bad credit. But one or a combination of the following tips will boost your chances of approval and help you secure the best deal on your next vehicle.

1. Review your credit report

It's wise to routinely check your credit report for errors. Sometimes, credit bureaus make mistakes and your credit score can suffer as a result. If you see any errors on your credit report, make sure to report them to Equifax and Transunion. The quicker you get errors removed, the faster your credit score will improve and the sooner you can get approved.

Did you know that you can download a copy of your credit report for FREE? Go to Borrowell to review your credit report and credit score in a couple of minutes. Once you understand what’s hurting your credit score, you’ll understand exactly what you need to do to improve it.

Pro Tip: If you have a low credit score but don't have time to build credit, you can still get preapproved for the vehicle you need without a cosigner. Your car loan will even help you build credit because it gives you the opportunity to build a positive payment history. But for better approval rates in the future, you should focus on building your credit rating by:

• Making all payments on time 
• Keeping credit card balances low
• Applying for new credit selectively
• Checking your credit report regularly and disputing any errors

2. Can you offer a down payment?

A down payment isn’t an option for everyone, but if you’re applying for a car loan with bad credit and without a cosigner, paying an amount upfront can be the difference between getting approved and getting declined. The bigger the down payment the better, but even a few hundred dollars will boost your approval chances.

3. Show steady income

Typically, auto loan programs that don’t require a cosigner, request to see proof of income before approving an applicant. Lenders need to see how much money applicants earn each month to decide if they can afford an auto loan.

The minimum requirements for car loan applications are that you make $10.50 an hour working full-time or equivalent. This works out to roughly $1,800 a month (before all taxes and deductions).

Although you can get approved with less income, meeting these income requirements will give you the best chance of being approved on your own.

4. Find the right lender

Many traditional lenders are rigid about their lending criteria. Banks and dealerships with in-house financing will request a cosigner after checking little more than your credit score. They simply don't have the resources to help all Canadians that walk through their doors. But some companies are able to leverage technology and a network of lending partners to look beyond credit reports. Canada Drives, for example, has spent over a decade building a robust network of prime and non-prime lending partners (including some of The Big 5 banks) and has helped hundreds of thousands of Canadians to find their perfect car, regardless of credit scores or cosigners.

Get pre-approved in minutes

Many Canadians waste time searching for the vehicle they want only to be declined for finance or faced with extra requirements such as a down payment or cosigner. Whether you have good or bad credit, it's always wise to get pre-approved for financing before you start looking at vehicles. With a pre-approval in your back pocket, you'll know exactly what kind of financing you're eligible for without a cosigner, giving you a spending limit to shop with. Get pre-approved for free and see what you're eligible for!