Can I get a new car loan with bad credit?

Whether you need a vehicle for work, to get to university, or to transport your family, owning a car is a necessity for many Canadians. If you have bad credit, getting into the driver’s seat may seem out of reach or you might be unsure of which lender is reliable when you’re looking to get a car loan.

We’ve put together some useful information to help you navigate getting a bad credit car loan. Regardless of your credit score, you can take the knowledge from this article to help make the best purchase decision. Buying a car – whether new or used – is an important decision. You’ll likely be driving your car on a daily basis, so buckle up for some light reading that will help inform and educate you about getting a car loan from a reliable source in spite of your bad credit score.

What’s considered bad credit?

When you use and build credit, you’re creating a credit history which in turn determines your credit score. Your records are reported to two bureaus in Canada: Equifax and TransUnion. When you apply for a loan or open a line of credit, the lender will request your credit record and score from these bureaus. Your credit score is the basis for lenders to determine risk in loaning you money. Typically, a credit score between 650-500 is considered bad credit, with anything under 500 seen as a high risk by potential lenders.

Why is your credit bad?

There are many factors – including some that you might not think of – that contribute to a low credit score. You need to use and build credit to create a credit history. Therefore, new Canadians and young adults with little-to-no credit record will have a low credit score. Aside from this first factor, there are four other key things that could be keeping your credit score low – missed or late payments, lack of variety in your credit mix, numerous credit applications, utilizing a high percentage of your available credit.

Read our article How to Improve your Credit Score, for some easy tips on how you can improve your credit score. With a little time and effort, you can boost your credit score and increase your financial standing.

What are credit score ranges in Canada?

Credit scores range from 350-900 in Canada. Average-to-good credit scores land somewhere between 680-900; anything under 500 is considered a risk for traditional lenders. If you’re part of the one-third of Canadians whose credit score may not qualify for a car loan from a banking institution, you might not know where to look. With several options available for sub-prime financing, it might feel like a daunting task to find a trustworthy lender.

What’s a bad credit car loan?

If you have a low credit score, you’ll still be able to get a car loan. With a bad credit auto loan, you’ll finance a car over a certain period of time. There’ll be a fixed monthly interest rate over the loan period. Typically, bad credit car loans are sought from other sources than traditional lenders. It’s rare that someone with below average credit – a credit score of 650 or less – will be able to successfully get financing from a bank. Traditional lenders view consumers with bad credit as too much of a risk. This is a prime example of why sub-prime financing exists – to provide an increasing number of Canadians with the ability to get a car loan, even with bad credit. RightRide is a source of in-house dealership financing from Auto Canada. This type of financing is for Canadians with a range of credit scores, but especially for consumers with a less-than-average credit score who are seeking a car loan.

Can I benefit from a bad credit car loan?

A car loan helps to provide you with a much needed vehicle for daily life. But, what most consumers don’t realize is that a bad credit car loan can actually help build and improve your credit score. A car loan adds variety to your credit mix; auto financing isn’t a “revolving” loan, so you won’t be able to rack up any additional debt, like you could on a department store credit card; paying your installments on time, in full, will add beneficial records to your credit history. These three factors help illustrate how even with bad credit, getting a car loan can benefit your financial wellbeing.

What types of vehicles can you get with a bad credit car loan?

Whether you’re looking for a compact car, sporty SUV, a truck for work, or minivan for your family, despite your credit score, know that your options are far from limited. You might have a brand – or maybe even a specific model – in mind when looking for a car loan. Keep in mind that it’s important you choose something that easily fits into your budget. The more you stretch out your finances, the more difficult it might be to make your payments. It’s worthwhile to explore your options, including gently used cars, or models that don’t have a bunch of high-end features you don’t really need.

How can I get approved for a car loan if I have bad credit?

Before you apply for auto financing – especially if your credit score is low – make sure you check off a few items on your list.

Three tips to keep in mind when applying for a bad credit car loan:

  1. Save up

    A small emergency fund is a great safety net to have, just in case. In addition to this safety net, consider saving a small down payment if you can. This payment can help reduce your installments over the loan period. Bonus: it might even help you negotiate a lower interest rate on financing.

  2. Collect your personal and financial information

    Being diligent and up-to-date on your personal information and financial status shows the lender that you’re responsible. Moreover, it will help you determine how much debt you can take on and what installments will fit into your monthly budget.

  3. Know the application process

    First off, applying for auto financing should be free – it’s actually illegal for a potential lender to charge you anything. If any payment is expected before you’re approved for a bad credit car loan, that’s a big red flag. In this case, don’t share any personal or financial information, and don’t submit the application.

How do I apply for a car loan with bad credit?

The first step in applying for a car loan is to fill out an application form, either online or in person, to give the lender some more information about yourself. Come prepared with current financial information, including pieces such as your proof of employment or income statement.

Once you’ve submitted your application, the lender will assess your current financial situation, and in turn determine the interest rate on financing. Note that the higher your credit score is, the lower your interest rate will be, and vice versa. Although, even if your credit score is bad, it’s possible to get financing at a reasonable interest rate.

Once you’re approved for a loan, remember that consistency is key. Follow up and ensure that you’re making your loan installments on time, in full. Defaulting on your payments could further reduce your credit score. If you ever find yourself in the situation where you can’t meet your payments, contact your lender immediately. A trustworthy and fair lender should be open to negotiating a different payment schedule or working with you to find a solution.

Having bad credit should never limit you from getting the car you need, nor should it force you to get credit from unscrupulous lenders. Learn more about how RightRide can help you get into a new or used car and onto the road. Apply now to be approved for a car loan.


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