The average credit score in Canada is 650. More than half of Canadians have scores above 750, while 3% have credit scores below 520. This latter figure qualifies as an extreme risk rating.
Canadians with credit scores below 650 often have trouble getting auto loans. Many lenders want borrowers to have an average credit score, at least, before they risk giving them money. Otherwise, they may be unable to guarantee they will receive this money back.
If you want a car but have bad credit, you may not know where to start. However, it’s still possible to get auto loans with bad credit. We’ll explore how to do so in this guide!
What Steps Can You Take to Get Auto Loans with Bad Credit?
You can follow several steps to improve your chances of loan approval. The first step is to understand how you earn a credit score.
Canada has two primary credit reporting bureaus:
- TransUnion Canada
- Equifax Canada
These credit bureaus consider five factors when they calculate your credit scores. These factors include your:
- payment history
- outstanding debt
- credit account history
- recent inquiries
- types of credit
You can use this information to improve your credit score when you understand these factors. For example, you can consider making more frequent payments on your bills. Likewise, you can try to pay down your outstanding debts, such as credit card bills and student loans.
Another strategy is to open more lines of credit. For example, you could take out a new credit card with a focus towards keeping its balance low. This new line of credit could help you improve your overall credit score.
Each of these steps can help you improve your credit score. However, none of these can do much if you don’t know your current credit score. So, let’s discuss how you can check your score in the next section.
How To Check Your Credit Score
Do you know your current credit score? If not, check on it before applying for an auto loan. Knowing your credit score is essential for understanding your chances of getting an auto loan.
So, how can you check your credit score? First, see if a credit checking website can provide your credit score. Alternatively, you can contact the credit reporting bureaus and request a statement of your credit report.
These statements will include data regarding your credit payment history. One way to improve your credit is to check for errors in this statement. Do you see any inaccuracies, such as missed payments you can prove you paid?
If so, challenge those inaccuracies. Overturning and correcting these errors can improve your credit score and your likelihood of getting a car loan.
However, you may find yourself rushed for a vehicle. If you have a bad credit score and don’t have time to improve it, consider asking family members or friends to co-sign your loan. Their credit scores can bolster your chances of getting a car loan despite a bad credit score.
Save For a Down Payment
Saving for a larger down payment can help you get a bad credit auto loan. First, it may help you qualify for a loan faster, especially if you have low credit scores. Larger down payments help lenders mitigate their risk of losing money.
Many lenders can require you to put some money down for the vehicle. Higher down payments can help you pay less on interest. The more you put down, the less money you’ll need to borrow to afford the vehicle.
You may also get a lower interest rate if you make a down payment. Lenders may consider your loan-to-value ratio when they set your interest rate.
Decide On a Budget
The next step is to consider your vehicle budget. How much can you afford to spend on this vehicle?
Cars come with several expenses to consider. For example, consider the following costs:
- monthly car payments
- fuel costs
- maintenance
- auto insurance
- parking expenses
- property taxes
The next step is to consider the length of your loan. Many borrowers stretch their loans out for a few extra years to have lower monthly payments.
However, these lengthier loans may cause you to spend more money. These longer loans can also increase your risk of becoming upside down on your loan.
Look for Different Providers for Bad Credit Auto Loans
The next step is to shop around with different lenders to find the best rates and loan terms. There are a few types of lenders who provide bad credit auto loans.
First, consider contacting your bank or credit union. This option is especially appropriate if you have a positive relationship with your bank already.
The next step is to consider online lenders. Some of these companies specialize in lending money to people with bad credit. They may also allow you to apply for prequalification on their sites. If prequalified, you can see the estimated loan rate and terms to qualify for.
Car dealerships are another lender option. These companies often have relationships with banks and finance companies. In other words, they can help you find a lender in their network that can approve you for a loan.
Work With Us to Get the Car Loan You Need
Finding auto loans with bad credit scores can be a significant challenge for many Canadians. Fortunately, it doesn’t have to be this way.
This article provides several tips for finding the best loans. If you still have trouble, consider working with us!
Our company offers several advantages to our borrowers. Some of these include better rates, low payments, and financial savings. Apply for an auto loan today to find the financial aid you need.