Getting a Car Loan Without a Cosigner in Canada

July 3, 2018

Getting approved for a car loan in Canada with bad credit and no cosigner isn’t easy, but it isn’t impossible either. Reviewing your credit report, saving money for a down payment and exploring different lenders could help you get approved for a car loan with low interest rates and affordable payments.

Applying for a car loan with no or low credit isn’t the easiest of processes, especially if you’re requested to apply with a cosigner. A cosigner is a person who is obligated to pay back your loan if you fail to make payments. The myth is that unless your credit score is good, and you make a solid income, lenders won’t typically approve your application unless it’s signed with a cosigner. A cosigned application is confirmation to lenders that the loan will be paid off whether it be by the actual borrower, the person using the vehicle, or the cosigner who pledges to pay if anything happens. Cosigners on car loan applications are almost always good friends or family members with the borrower. However, not all borrowers with no or low credit can apply with a cosigner, and often borrowers don’t want to – they don’t want to put their financial responsibility on the back of someone else, especially because a cosigner’s credit is at risk.

Although cosigners can strengthen an application, it’s not an option for everyone. The good news is that there are options available for Canadians with no or low credit who need vehicle financing but don’t want to apply with a cosigner. When you apply for an auto loan and are told you don’t qualify because of less-than-perfect credit, it’s the lender who says you need a cosigner. Thankfully, there are tons of lenders in Canada who work with credit-challenged Canadians. You just need to know where to find them. First, let’s take a look at some common questions you might have about applying for a loan with a cosigner in Canada.

Can You Remove a Cosigner From a Car Loan?

A cosigner takes equal responsibility for a loan and therefore becomes liable for the amount of money owed. If you’re a cosigner, or you’re somebody who has a guarantor on a loan and wants to remove the cosigner from the agreement, there are couple different actions that you can take. First, the loan can be refinanced. When a loan is refinanced, the loan agreement is subject to change, which means that cosigners on the loan agreement can be removed. However, it’s hard to refinance a loan if the person you’ve cosigned for hasn’t been able to make regular monthly payments or has a poor credit history. Refinancing a loan is a good option for someone who’s been able to build their credit score and make payments on a loan that has a cosigner. Another option to remove a cosigner from a loan is to improve the borrower’s credit rating. If a borrower has less than perfect credit, working on rebuilding their credit history will speed up the process in which a cosigner can be removed. If you’ve got a loan with a cosigner and you’re unable to pay the loan, it might be a good idea to close the account. It’s impossible to remove a cosigner’s name off of a loan, however, the above steps can help speed up the process.

How is a Cosigner’s Credit Impacted?

If you decide to cosign on a loved one’s loan, your credit won’t be impacted unless the borrower fails to make loan payments. Signing as a cosigner won’t impact credit, and this is also true if the borrower is successful in making payments on time and in full each month. However, if you cosign for someone who fails to make payments, the defaults will directly impact your credit score. Cosigning means you’re held legally responsible for the loan throughout the term length. If the borrower can’t pay off the loan, unfortunately, this impacts both the borrower and the cosigners overall credit report and score.

What Credit Score is Needed for a Car Loan Without a Cosigner?

If you’re in the process of applying for a loan with a credit score that’s less than 680, lenders will view you as a subprime customer.

Thankfully, there are a lot of lenders who are willing to approve Canadian consumers who are looking to borrow money with less than perfect credit. However, sometimes creditors will advise that you apply with a cosigner to increase your chances of getting approved for a better rate.

If your credit report has a lot of defaults or if you have a history of delinquency, lenders may view you as a high-risk borrower. In order to be approved for a loan with a cosigner, the cosigner has to have a solid credit history and good credit score.

Typically, a credit score that’s 700 or over is considered good. This being said, if you’re struggling to get approved for a loan with poor credit and are looking for a cosigner, make sure the cosigner is financially stable and can help you. If you can’t find a cosigner, work on building your credit by fixing any errors on your report, adding income and working to pay down debt. Once your credit score rises, lenders will see you as less of a risk and your chances of being approved for an affordable loan without a cosigner will increase significantly.

Canada Drives is an online auto financing company that is partnered with hundreds of lenders who specialize in working with no or low credit profiles. If you need an auto loan but don’t have or want to use a cosigner, do some research on financing institutions like Canada Drives, and take these three pieces of advice to increase the chances of approval:

  • Review your credit report – Do You Even Need a Cosigner?
  • Consider increasing your down payment
  • Make sure you have a steady income 

So How Can You Get a Car Loan Without a Cosigner?

  1. Review Your Credit Report – Do You Even Need a Cosigner?

Lenders review an applicant’s credit history to see how much of a risk factor they are. Typically, if an applicant has a credit score less than 500, lenders won’t approve the application unless a cosigner with great credit standing and a steady income pledges to be held liable if any faults are made. Knowing what your credit score is and becoming familiar with your credit history will help you better understand what you can qualify for. It will also help you navigate what lenders you should be shopping. If a lender isn’t confident in your credit score and unwilling to lend, having an archive of lenders who work with bad credit customers on the back-burner will help you find the best rate possible, cosigner free.

If you see that your credit score is suffering, it’s worth working on improving it. Although credit rebuilding takes time, regardless of the situation that you’re in, it’s possible to do. An option for Canadians who want to rebuild their credit score is to take out a secured loan. These types of loans can help build credit fast. If you see any errors on your credit report, make sure to report them to Canada’s major credit bureaus, Equifax and Transunion. The quicker you get errors removed, the faster your credit score will boost. Copious amounts of debt could also turn away a lender. Minimizing the amount of money that you owe before applying for a car loan will show lenders that you’re in good financial standing and it could also boost your credit score.

  1. The Larger the Down Payment, the Better

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, it makes the world of a difference. The bigger the down payment the better, but even $500 can lower your interest rates and increase your chances of getting approved. It doesn’t hurt to calculate the difference between loan amounts and monthly payments to figure out the amount of down payment you should make. Attaining a car loan without a cosigner and bad credit isn’t attractive to lenders, but with a decent down payment and the right lender, it’s possible to get approved with great rates. The more cash you have, the more likely you’ll be approved. Pick up an extra side job or do some freelance work to save for as big of a down payment as possible – this will show lenders that you’re committed to paying back the loan and it will also reduce your risk as a borrower.

  1. Your Current Employment Could Make it or Break it

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. More money in the bank and a bigger paycheque makes a stronger case for you to handle car loan payments each month. 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 the taxes and deductions are taken off). As a salary, this minimum is roughly $21,600 annually. Although you can get approved with less income, meeting these income requirements will give you the best chance of being approved on your own. The less your income will be eaten up by loan payments, the more likely you’ll get approved for an auto loan without a cosigner.

The best thing to do when you’re applying for a car loan in Canada with bad credit and no cosigner is to be 100% HONEST when working with a high-risk lender. When you’re filling out your credit application, input the information truthfully and answer each question thoroughly. Chances are lenders see you as a risk already and lying on your application will make the situation worse. Remember – there are millions of Canadians in your exact situation! Not everyone has established credit or family and friends who are willing to cosign. Review your personal credit report, save your cash and find the best lender before agreeing to any terms.

Apply with Canada Drives for free right now to see what you could be approved for!

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