Getting approved for a car loan in Canada with low or no credit might seem next to impossible but with the right plan and research it’s a walk in the park. Approximately 3.4 million Canadians are considered subprime borrowers. Car dealerships across Canada can help people with low or no credit get approved for affordable car financing.
Collections, bankruptcy, consumer proposals and closed accounts on your credit file are just some of the factors that can damage credit. However, Canadians with no or low credit shouldn’t assume the worst when applying for auto financing. Although auto loan shoppers with no or low credit should be prepared for higher interest rates, the act of getting approved for vehicle financing is not impossible, nor is it unheard of. In fact, there are 3.4 million subprime borrowers in Canada.
Subprime, another word for non-traditional lending, is a type of borrowing for people who have less than perfect credit. Compared to prime loans, subprime terms are typically longer – an auto financing option for Canadians who might struggle getting approved for financing through traditional lenders.
The secret to getting auto financing with great rates in Canada, regardless of your credit score, is to understand every option available to you given your personal credit situation. Thankfully, the alternatives to getting financing through a traditional lending institution are gaining popularity within Canada. Not only are alternative credit sources great for people who have less than perfect credit, but they’re also reliable, safe and as easy to navigate compared to a bank or other financial institutions.
If you’re in the process of applying for an auto loan, do yourself a favour and check your credit report. This may seem like an unnecessary step, but for Canadians who think they might fall under the subprime category, it’s crucial. Worried car buyers who check their credit report before stepping foot inside of a car dealership will save stress, time and energy. The last thing you’ll want to deal with inside of a car dealership is financial surprises or frustrations. Understanding the details of your credit history will ensure that you’re aware of all marks on your file which will better prepare you for your auto loan approval.
Once you’ve attained a copy of your credit report and feel confident that you’re financially ready to buy, these four tips can help set things in motion for a stress-free car loan buying process, especially if you have low or no credit score.
1. Develop a Savings Plan
Ease into the car buying process by developing a savings plan for a down payment. Down payments aren’t mandatory when buying a vehicle, but if you’re applying with low or no credit, they could make a huge difference in terms of your monthly payments and interest rate. If you’re several months away from applying for auto financing, consider a down payment to help stay on top of your budget. Making a down payment and monthly payments could help raise your credit score fast.
The more you save for a down payment, the better equipped you’ll be at managing your expenses. Establishing a savings account that you can transfer money to each month, for example, can help you earn enough in time to make your purchase.
2. Do Your Research
Don’t just research the car of your dreams, research how the entire car buying process. Questions regarding interest rates, prepayment penalties and the length of the loan term are great conversation starters when you’re in the market for a new ride. Online research, advice from friends and family and even calling your local dealership are valuable ways to ensure you’re getting the best deal possible.
If you know that you’re a subprime buyer, a pre-approval might be your best option. Pre-approvals analyze your income, expenses and credit report to help determine what you could qualify for. Car shoppers who have a pre-approval are more likely to stay ahead of the game and overcome subprime obstacles. Canada Drives offers free, online auto finance approvals for Canadians facing all types of credit situations. Click here to learn how this fast and easy online application can get you driving in no time.
3. Get Comfortable with Your Money
Knowing exactly where your finances stand is the best way to prepare for financing a vehicle. Look at your debts – how much do you owe already? How much money do you bring in every month? These questions are vital if you want to successfully rebuild your credit during the length of an auto loan.
Check in with your finances and evaluate your budget to guarantee that you’re staying on top of your money to ensure you’re making monthly payments. Getting comfortable with your budget will help you better calculate what you’ll need financially in the long-term regarding upfront vehicle costs, repairs, maintenance, fuel costs, etc.
Through the process of getting comfortable with your money, you’ll also be able to improve your credit score. Familiarizing yourself with your credit report will help you better understand each one of your accounts. If you notice any mistakes on your report, give yourself at least one month to fully dispute them before applying for a loan. Errors on your credit report will delay loan approvals. Clearing up all mistakes will boost your score, landing you with better rates and terms on future loans.
4. Compare Lenders and Loan Providers
Canadians that fall under the subprime category should compare lenders and loan providers to find the best rates possible. While there is a selection of lenders and loan facilitators that will be willing to help you obtain a loan, not all loan features will be created equally. Some loan providers will have few options, and some may have access to favourable terms. Seek out lenders with loans that meet your needs. Comparing lenders is well worth the time if you want to save money and rebuild your credit score.
When shopping for auto financing, it’s important to be aware of credit scoring models. Every time you apply for a loan, a lender will pull your credit file to review your history. When a lender pulls your credit, they’re making an inquiry on your file. In the case of an auto loan, inquiries made within a 14 to 45-day window are calculated as a single inquiry. Keep this in mind when shopping for an auto loan, as too many inquires on your credit file could negatively impact your overall credit score. Limiting your auto loan shopping will help you avoid any damages to your credit.
Here are some more quick tips on how you can save money on your next auto loan with low or no credit:
Save your pennies! The best way to beat high rates is to have a decent amount of money saved before you apply for a car loan. Already applied? It’s never too late to start a budget and get your finances on track. The better off you are financially, the sooner you can trade-in your vehicle for a better option.
Avoid expensive add-ons. Do you really need that heated drivers wheel? Paint protection? Rust proofing? Think about your wallet before adding on unnecessary features.
If you can, choose a shorter term. The longer the term, the more money you’ll be paying in interest rates. The shorter the term, the more money you’ll save. However, with a short term comes high monthly payments. If your budget can’t handle higher payments, stick to the longer-term option.