How to Qualify for Car Financing with Bad Credit in Canada

September 3, 2019

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 and car dealerships that specialize in helping bad credit customers find affordable car finance. We reveal how you can get a car loan with bad credit; it’s 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 know it now.

Whether you’re seeking out 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 approved for a car loan with bad credit.

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

Why banks decline your car loan: 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”, it’s important to understand that there are other ways to get car finance. There are lenders who 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.

How to get a car loan with bad credit

If you have bad credit, you can still get approved for an auto loan if you go through a dealership or provider 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’re in steady employment, that’s half the battle. Here are a few more tips that could help you secure approval for car finance with poor credit.

1. Build 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 sites like 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.

In the meantime, you could look at ways to get your personal finances under control. Look at how much money you owe to creditors. Create a budget to ensure that you’re staying on top of savings and debt management. With your finances in better health and your credit score in recovery mode, it will make life easier when the time comes to apply for your car loan. 

2. Save up for a down payment

Start saving for a down payment to increase your chances of getting approved for financing. If you can offer a down payment, it will help lower your monthly payments since you’re choosing to pay off a percentage of the total price upfront. However, if you need a car immediately but have no savings, there are no money down options that you can explore, and Canada Drives can help you find the option that’s right for you. 

3. Find a cosigner

A cosigner is a trusted friend or family member who agrees to share responsibility for your loan. With a cosigner attached to your application, you’re more likely to get approved. A cosigner assumes the risk of the car loan, thereby decreasing 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

4. Search lenders and loan providers

Do your homework. Different lenders and loan providers have different offerings and some aren't equipped to help bad credit customers. Some pre-dealership research could put you among the dealerships and loan providers that specialize in subprime lending. With the right dealership and lender, you can avail of programs that are set up to help car buyers with poor credit.

Today, there are opportunities for bad credit car buyers that didn’t exist before.

Canada Drives has helped hundreds of thousands of Canadians to get approved for car finance with ease, regardless of their credit score.

When you have bad credit, a car loan approval is hard to come by. But Canada Drives’ dealer partners work hard to get applicants approved for the best vehicle and financing options within 48 hours. If you need an affordable vehicle and want to rebuild your credit, apply with us for FREE today!

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