Canadians with no credit or bad credit often have a more difficult time getting approved for loans. However, there are car dealerships that finance bad credit individuals and work with bad credit customers available, and they can help a person get affordable auto financing. Considering the minimum requirements to qualify for low credit car loans, new opportunities are on the horizon for bad credit car buyers in Canada.
How to get a car loan with bad credit
Applying for a loan, applying for a job, renting a vehicle or applying for rental housing - your credit score is a factor that will decide whether you are approved or denied for these necessities in life. Someone with a higher credit score might not be a big risk to financial institutions compared to someone who has less than perfect credit, and your credit history can impact the interest rates and credit limits that you’re approved for.
Credit scores in Canada range from 300 (lowest, or just getting started with credit) to 900 points (the highest credit score you can achieve). According to TransUnion, one of Canada’s major credit bureaus, a credit score that is 650 is the average score among Canadians and will likely qualify you for a standard loan. However, anything less than 650 might mean you’ll have a more difficult time receiving new credit.
Considering the average credit score in Canada is on the brink of subprime (a customer who can’t qualify for prime rates), applying for credit can be a frustrating and time-consuming process. Repairing your credit might seem next to impossible when your credit sits below the average score, especially when one of the best ways to rebuild your credit is having revolving credit; opening a new line of credit to show creditors that you’re responsible enough to pay back your loans.
Having a great credit score means that walking into a bank, financial institution or dealership and getting approved for an auto loan is a relatively simple process. However, for a Canadian with low or no credit history, it isn’t so simple. It’s important for Canadians to get quality vehicles without being strapped with high payments. Thankfully, there are lenders who specialize in poor credit loans, and they can help a person with bad credit get approved for a vehicle that fits into their budget and lifestyle – through the process of paying back a creditor, these lenders can also help a person rebuild their credit history.
Typically, the minimum requirements for a person to qualify for an auto loan with low credit is that they make at least $1,800 every month before taxes or deductions (i.e. CPP, EI, etc.). To put it into perspective, here’s the breakdown:
|Hourly||At least $10.50 per hour for 40 hours per week, or equivalent|
|Weekly||At least $420 per week (before deductions)|
|Bi-weekly||At least $845 every two weeks (before deductions)|
|Twice per month||At least $900 twice per month (before deductions)|
|Monthly||At least $1800 per month (before deductions)|
Meeting the minimum requirements isn’t necessarily the make-it-or-break-it when it comes to qualifying for car financing. In fact, some lenders will even work with people who earn their income from government programs. Whatever your financial situation is, there are options for obtaining a loan through alternative credit sources. If you have no or low credit, it’s important to understand that your options for car financing aren’t slim. Here are three tips that could help you put things in motion for stress-free car buying with poor credit.
1. Develop a Savings Plan for a Down Payment
Start to save for a down payment on your future car loan to increase the chances of being approved for financing, and to help reduce the total amount you’ll owe on your overall loan. Paying a down payment will help lower your monthly payments, which could help you focus on other payments (i.e. credit card, mortgage, student loans, etc.). In time, a down payment could be the factor that helps you turn a bad credit situation around. The more you can save for a down payment, the better equipped you’ll be to make your payments on time and more manageable. Establish a savings account and get saving as soon as possible!
2. Where Do You Stand Financially?
If you don’t know where your finances stand before applying for auto financing, it’s best to do some personal digging to figure out what’s in your accounts and where your credit score lands on the scale. Look at how much money you owe to other creditors, account any money you earn each month and start budgeting for how much of a car loan you can afford. Maintain a consistent relationship with your budget to ensure that you’re staying on top of savings and debt management. By doing so, life will be easier when the time comes to sign a new auto loan agreement because you’ll know exactly what you can and can’t afford.
3. Compare Lenders and Loan Providers
Prepare for buying a car by comparing lenders and loan providers. While there is a selection of lenders and loan facilitators who can help low credit car buyers obtain affordable and reputable auto financing, not all loan features are created equally. All loan providers have different options; some will have access to terms that you think are more favourable compared to others. When comparing lenders and loan providers, you might bring a set of personal needs and wants into the process. Remember: what matters most is that your loan is manageable. Sometimes there are trade-offs when it comes to financing a car with bad credit. However, a solid amount of research pre-dealership visit could put you among the loan providers that specialize in subprime – and these are the guys who will have access to lenders with the best rate and terms.
New opportunities are on the horizon for bad credit car buyers in Canada.
Canada Drives works with hundreds of Canadians every day, ensuring that they get good quality vehicles with ease and simplicity, regardless of their credit score. Getting approved for auto financing with bad credit can take several days, and even weeks, but Canada Drives’ dealer partners work hard to get applicants the best vehicle and financing options fast. If you need an affordable vehicle and want to rebuild your credit, click here to apply with us for free today and learn more!