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How to Get Approved for a Car Loan with Bad Credit in Canada

Canadians with bad credit (or no credit) often have a more difficult time getting approved for car loans. But it doesn’t have to be that way! When it comes to bad credit car loans, new opportunities are on the horizon. There are lenders, dealerships, and retailers that specialize in helping bad credit customers find affordable car finance. We reveal how you can get a car loan with bad credit. It might be easier than you think.

Let’s start by stating the obvious: your credit history is important. Maybe you didn’t know that then, but you do now.

Whether you’re seeking a loan, buying a car, or applying for a mortgage, your credit score traditionally decides whether you get approved or declined at crucial moments in your life. But if your credit score is bad now, don’t worry, you can improve it. And in the meantime, you can still get pre-approved for a car loan with bad credit.

You just need to know where to look....

Get pre-approved for your car loan today. Regardless of your credit rating, we know how to get you in the driver’s seat of a vehicle you’ll love and at a price that makes sense! It only takes 3 minutes to get pre-approved, and at zero impact to your credit score.

Two main reasons why people with bad credit struggle to get approved

1. Your credit score

Credit scores in Canada range from 300 points to 900 points. According to Equifax, one of Canada’s major credit bureaus, a good credit score of 660 will likely qualify you for a loan. However, any score of less than 660 might make it challenging to get approved for new credit.

Canadian Credit Score Meter, credit scores range from 300 (lowest) to 900 (highest)

Considering the average credit score in Canada is on the brink of subprime (a score below 660), applying for credit can be a frustrating process for a lot of people.

Repairing your credit might seem next to impossible when your credit is poor. You see, one of the best ways to rebuild credit is by making regular payments on a loan to show lenders you are reliable. But here's the kicker: you find it difficult to get approved for a loan because you don't have good credit. It's what you call a conundrum.

Having a great credit score means you can simply waltz into a bank or dealership and get approved for an auto loan without any fuss. However, for a Canadian with low or no credit history, it gets a bit trickier. 

When the banks say “no”, there are easier ways to get car finance. There are providers that specialize in helping customers with bad credit, and they can help you get approved for a vehicle that fits your budget and lifestyle. With a bad credit auto loan, a customer not only gets into the driver's seat of a new car but also gets an opportunity to rebuild their credit history.

2. Your income

If you have bad credit, you can still get approved for an auto loan if you go through a dealership or retailer that knows how to help. Some lenders will look at other factors besides your credit score, like your income. Typically, the minimum income for a person to qualify for an auto loan with low credit is $1,800 every month before taxes or deductions (i.e. CPP, EI, etc.).

To put your income requirements into perspective, here’s the breakdown:

Hourly Income:

At least $10.50 per hour for 40 hours per week, or equivalent

Weekly Income:

At least $420 per week (before deductions)

Bi-weekly Income:

At least $845 every two weeks (before deductions)

Twice per month:

At least $900 twice per month (before deductions)

Monthly Income:

At least $1800 per month (before deductions)

Meeting the minimum income requirements isn’t necessarily make-or-break when it comes to qualifying for car financing. In fact, some lenders will even work with customers who earn their income from government programs. But if you have steady employment, that’s half the battle.

How to get a car loan with bad credit

Here are a few tips that could help you secure approval for car finance with poor credit.

Total Time:

  • 120 minutes

What you’ll need:

  • Proof of Employment
  • Bank Statements
  • Mobile Phone
  • Drivers License

Understand your budget

Understand your budget

If you want to find vehicle options that fit your budget, you should form an idea of how much you can afford every month. Our car loan calculator will give you a rough estimate of what to expect. If you want to trade-in your current vehicle for something newer, your trade-in vehicle will lower your monthly payment, so make sure you factor that in. Find out more about your vehicle’s trade-in value.


Consider a used vehicle

Used Vehicle Icon

If you want to get approved finance on a great deal, look in the used car market. It’s extremely robust in Canada, so whether you want a truck, SUV, or passenger car, you’re bound to find what you’re looking for there. You’ll get almost all the benefits of a new car but at a lower purchase price. Also, depreciation isn’t as big of a concern when you shop pre-owned.


Get pre-approved online

get approved online icon

While some dealerships and lenders are not equipped to help bad credit customers, online retailers like Canada Drives can help you get pre-qualified for free, and connect you with dozens of great vehicle options. With a pre-approval in your back pocket, you’ll know exactly how much you can afford, saving you a lot of time and frustration.


Decide on a down payment

Downpayment Icon

Decide whether or not you want to make a down payment and how much your down payment should be. The down payment is a percentage of the purchase price paid upfront. With a down payment, your chances of approval are even higher. But a down payment isn’t possible for everyone, and there are also no money down options you can explore. Canada Drives can help you find the option that’s right for you.


Decide on a cosigner

Cosigner Icon

Do you have a cosigner ready to sign or will you be the only name on your car loan agreement? A cosigner is a trusted friend or family member who agrees to share responsibility for your loan. A cosigner can boost your chances of approval because he/she decreases the level of risk for the lender. However, like a down payment, a cosigner isn’t a viable option for everyone and you can still get approved without one.


How does a car loan help improve bad credit?

If you don’t know where your finances stand before applying for auto financing, it’s best to do some digging to figure out where your credit score lands. You can download your credit report and learn your credit score for free at Borrowell. If your score is poor or fair, you might want to look at ways to improve it. With a few small adjustments, you could see your credit score increase in as soon as 30 days. Fortunately, a car loan can help you build up your credit score!

But how?

Making your car payments on time every month will help improve your credit rating because your payment history contributes to 35% of your credit score. Good payment history tells lenders if you are a reliable borrower that will pay them back. With a better credit score, you'll qualify for better interest rates on future loan products!

Canada Drives makes car shopping easy!

Having spent over a decade building a large network of prime and non-prime lending partners (including some of The Big 5 banks), Canada Drives has helped hundreds of thousands of Canadians to find their perfect car, regardless of credit scores.

Even if you have bad credit, Canada Drives can help you find your perfect car—all from the comfort of home. Get pre-approved for free today!

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