You’re ready to buy a car and you’re doing the research. You’re ready to go sign your name on the dotted line and purchase your new set of wheels when you get denied for financing because of your credit. If this sounds familiar, bad credit car loans may be the answer.
The struggle of bad credit is real, but there are ways to get approval for car loans. To help make sure you get approved, we’ve rounded up everything you need to know about how to get a car loan even if you have bad credit.
1. Understanding Your Credit Score
Credit scores in Canada range from 300 to 900. The closer your score is to 900, the better. So how is your score calculated?
There are a lot of factors that go into your credit score. Your payment history, number of late payments, and the amount of debt you have each play a role. The length of your credit history is also a contributing factor.
Missing payments, maxing out your credit cards, and making late payments will all lower your credit score. The amount of credit you use compared to the amount you have available also factors in. This is known as your credit utilization ratio.
If you know you have a low credit score or you’ve already been denied a car loan, you understand how devastating it is. Your credit affects everything from your loans to your ability to rent an apartment.
2. Your Credit Score Determines Your Interest Rate
A credit score carries a lot more weight than just any number. Your credit score plays a big role in what interest rate you receive, how much your loan costs, and what you qualify for. You may think you can afford a car with a certain loan payment only to find your credit score changes your plans.
When you have great credit, you can afford more on a car loan. This is because you’re paying less in interest and more in principle. With a lower credit score, your interest rate rises to cover the lender’s risk.
Over time, the more you pay in interest, the more your loan is costing you. This is why having a higher credit score saves you money in the long run. If you have a low credit score, you’ll want to work with a lender who understands this.
The right lender can find a payment you’re comfortable with. We understand that you need a car regardless of your credit. A bad credit car loan can even help you build your credit back up and boost your score.
3. Preparing for Your Car Loan Application
To prepare for your car loan with bad credit, there are a few things you can do before you get started. First, gather all your personal information including your identification, your address, and your employment information.
We’ll take care of running your credit and verifying your assets and employment. Before you apply, it’s helpful to look over this as well and have your income figure handy. This will help us determine what car payment you can afford.
If you’ve been denied a car loan before, you know how stressful applying for a car can be. Thankfully, we understand credit problems and have affordable options available. You can apply quickly from your phone in minutes.
4. Creating a New Car Budget
If you have a low credit score, a budget is critical. Your budget will help you maintain your payments, keep your finances in check, and help you monitor your spending. A budget is also quick and easy to create.
To start, write out all your income and expenses. Write out what you bring in from each paycheck each month. When it comes to your expenses, you’ll want to be as detailed as possible.
The more you include the better picture you’ll have of your finances. Write out every bill, every credit card payment, balance, and expense you have. From here, you’ll have a much better idea of what car payment will fit into your budget.
5. Finding a Car You Can Comfortably Afford
While a new sports car may have caught your eye, it might not be the most affordable car on the market. This is why it’s so important to have your budget set before you start shopping. It’s easy to let your eyes get bigger than your bank balance.
We’ll help you find a car and a payment you can afford comfortably. Overextending yourself, missing payments, or not paying other bills won’t do your credit any favors. Stick to your budget and keep making your car payments on time to help your score improve.
6. Making Your Payments on Time Will Boost Your Credit Score
One positive to a credit score is that it isn’t set in stone. Your credit doesn’t stay the same forever. Thankfully, no matter how low your score is, it can always go up.
Making your car payments on time will greatly help boost your score. Each month you make your payment on time, the higher your score will go. The same goes for your other bills and payments outside of your car.
7. Using a Car Loan to Improve Your Credit
If you have trouble keeping track of your payments and your due dates, there are a few things you can do to help you remember. To start, think of your car payment as a tool to help improve your credit.
Write out all your due dates in your budget and set calendar reminders. If you can, set up automatic payments so you know your bills are always paid. Your payments get auto-debited each month and you don’t have to worry about missing payments.
The longer you have your car the better for your credit. You’ll have years of on-time payments on your credit history to show. This will slowly boost your score over time.
8. Getting a Pre-Approval
Before you start shopping for a car, it’s helpful to get pre-approved. We can help you determine your payment, your car budget, and more.
When you go to buy a car, your pre-approval will show the dealership you’re a serious and qualified buyer. It will also help you find cars within your budget and narrow down your options.
9. Staying on Top of Your Credit
One of the best things you can do for your credit is to check it regularly. If you never check your credit, you’ll never know where you stand until it’s too late. You can check your credit for free online and through your bank or credit card companies as well.
Checking your credit will help you track your progress and make sure there are no surprises when you go to apply for a car, a mortgage, or any other form of credit. It’s easy to do and it will help make sure you have a clear picture of your finances.
10. Tips for Paying Down Debt
When you make your new car budget, you’ll also want to carve out a little room for saving and paying down your current debt. It’s almost impossible to improve your credit if you keep accumulating debt.
As you go through your budget, see if there’s anything you can reduce or cut. You may find you’re paying for a yoga class you’ve never been to or a gym you haven’t been to in years.
Any extra savings you can find will help you avoid using your credit cards and pay down your debt. It’s also important to keep your car payment well within your budget. The longer you can keep saving and paying down your debt, the higher your score will go.
Start Applying for Bad Credit Car Loans Today
If you have less than perfect credit, it doesn’t have to mean you’re stuck in an old or unsafe car. Thanks to bad credit car loans, you can still afford a new car even with a low credit score. It’s helpful to know that there are options available even when you’ve had a financial hardship.
A low credit score or a previous loan denial, doesn’t mean you don’t have options. If you’re ready to start shopping for your new car, fill out the application form here. We’ll get you set up with an easy online loan application and connect you to one of the many car dealers we work with.