How to get a car loan with bad credit credit in Canada

How to get approved for car loan with bad credit in Canada

Imperfect financial decisions due to lack of experience, failure to realize the importance of maintaining good credit history, or even losing a job at the wrong time. All that could lead to bad credit. Well, we don’t have to be chased by our mistakes – we should be able to learn from them. Getting a loan, as it may surprise you, is not only going to help you buy what you need but also can help you repair your credit history. But how does one get approved for an auto loan with bad credit?

Continue reading to learn all about bad credit and car loans. You’ll find out what to do now and how not to get into this again.

What Affects Your Credit Score

Credit bureaus use different algorithms for calculating your credit score, and they do not reveal them. However, your credit score is primarily influenced by the following factors. Looking at them can give you an idea of what foul you may have made in the past, and what to avoid in the future.

1. Bill payment history. This is the number one factor affecting your credit score, as it shows whether you are able to make timely payments. Your lenders want to see that you can maintain this pattern. Note that even one missed payment can negatively affect your score.
2. Amount of debt. This is the ratio of used credit to available credit limit throughout all your loans combined. This tells lenders how much you depend on borrowed funds. A good practice is to keep your debt under 30-35% of the available limit.
3. Age of your credit history. Your financial behavior is important, but only if it can be traced far enough back. A long enough period shows the consistency of your credit record. This is why a lack of credit history virtually equals bad credit history.
4. Credit variety. The more various credits you manage to keep clean, the higher your score is. If you can maintain a portfolio of loans, like a student loan, credit cards, mortgage, or a personal line of credit, a credit bureau will see you as a more reliable borrower.
5. Number of credit inquiries. Each time a credit check is done, an inquiry is added to your credit report. Too many of them within a short period can make you look like you are seeking extra loans to pay for previous loans.

What Banks Can Tell from Your Low Credit Score

When banks need to make a decision in regards to giving someone a loan, they request a report from a credit agency, like Equifax or TransUnion. While your credit score is a summary of your credit history, a report can contain a lot of detailed information.

In addition to your personal information, the report would normally include information on non-sufficient funds payments, credit-related court information, inquiries from other lenders, and a lot more.

What Measures Can You Take to Remedy Your Bad Credit?

The following steps can be taken to help your credit score improve:

1. Timely payments. Whatever credits you have right now, it is never late to start displaying a more responsible financial behavior by making full payments on time. Never miss a payment, and your credit score recovery will not make you wait.
2. Minimum payments. Don’t give up, even if your current situation does not allow you to make full payments. Your monthly statements indicate a minimum payment you can stick to until your financial status improves.
3. Let your credit history grow. Longer credit history is always better, so keep your oldest credit card even if it is not used much.
4. Maintain low debt. Maxing out your credit sources is never a good idea. Start cutting your debt in order to bring it to a reasonable minimum: don’t go over 35% of your available limit.
5. Credit diversity. As it becomes available to you, start expanding your credit portfolio. This will show lenders that you are capable of managing multiple credit accounts, and hence, increase their trust.

Where to Go to Get an Auto Loan Bad Credit?

Typically, major banks would refuse to deal with bad credit. However, there are companies that specialize in bad credit auto financing, and some of them can help you with this. Also, you can find the so-called “buy here pay here” dealerships.

Often, only proof of income will suffice as they don’t check your credit. But they also do not report your credit, which means that such a loan won’t help improve your credit history.

Tips on Getting a Bad Credit Car Loan

Here are a few tips that can help you get a loan with bad credit.

1. Get prepared. Approach finding a car loan as thoroughly as possible: know your credit score, don’t settle for the first lender and keep shopping until you have a good list to choose from, get pre-qualified so that you know what loan amount you can expect.
2. Save for a down payment. A larger down payment means you will need a smaller loan amount, which is easier to get.
3. Keep it modest. Prioritize your purchase: you can live without a sunroof and leather seats. After all, all you ultimately need is a means of transportation.
4. Consider a cosigner. This option involves another person with better credit standing. Usually, it is a friend or a family member of the prime applicant. Although this requires a certain amount of trust, it may noticeably decrease your interest rates.
5. Read your paperwork. It may sound obvious, but studying the agreement will help you both avoid mistakes and plan your future steps, like possible refinancing of your loan when the time comes.

What to Do Should You Get Declined?

The very first thing you have to do is to understand the reasons for rejection. Normally it would be related to either your bad credit standing or your income, but not limited to that.

Once you know the grounds for rejection, you can plan your next steps. Rejection does not influence your credit score, so you may want to contact another lender. Next, plan your strategy and start working on your weak points.

Is There Anything Else You Need to Do?

Having bad credit is no fun already, but you don’t want to lose even more. There are subprime lenders that can try taking advantage of someone in a rather desperate situation. In such cases, they may attempt to trick you into buying things you don’t need, thus making you lose money, not save. A typical example is an insurance on your credit.

When Is The Right Time to Do Your Car Loan Refinancing?

Ultimately, the right time to do refinancing of your loan is when doing it can save you money.

First, if you want to get better rates, you need to have your credit score improved. When you do, you need to add a few more variables into the equation. See, if there are fees with your current lender that you need to pay, like a prepayment penalty or a processing fee. The savings that your new loan can provide should at least cover these expenses. It is good to check for these things before you sign.

Also, take into account the loss of your car value. At a certain point, when you owe more than the car is worth, lenders can find it unreasonable for them to refinance your loan.

What If You Can’t Make a Payment?

Don’t panic, if you think you might miss a payment. You’re not the first, and not the last. Don’t wait until the last moment and talk to your lender. You are not the first, and they may have some sort of relief program. If you believe your financial problems might stretch over several months, then it may be the right time to consider refinancing your loan.

At the very worst, you can sell your car. This is not going to be a step forward, but at least your credit score won’t suffer. With all that in mind, it is always a great idea to seek professional help and talk to a credit advisor.

Are You Ready for a Car Loan?

Now that you are better informed about different aspects of getting a bad credit car loan, you should make your mind on what you really need. This will help you choose between available options at each step. Contact us and together we can build a strategy for getting you a car loan.

With a large number of car loan providers as our partners, our specialists can make your purchase happen and get your car delivered to your door – “from your phone to your home”.