As inflation surges, more Canadians are finding it hard to make ends meet. In a recent survey, half of Canadians said they felt financially “insecure” and were having trouble paying down debt. What does this mean for those interested in buying cars?
Well, it means that it’s more important than ever to stay focused on your financial goals. Whether you’re focused on paying off debt or improving your credit score, both are necessary if you’re interested in getting a guaranteed car loan.
Not quite sure what this is or what you need to know about bad credit auto loans in Canada? Keep reading to find out.
What Is a Guaranteed Car Loan?
Let’s first start by talking about guaranteed car loans. In this context, what do we mean by guaranteed?
Have you ever been turned down for a car loan due to bad credit or lack of income? Well, in that case, a guaranteed car loan is exactly what you need. This type of loan guarantees that you will be approved for a car loan no matter your financial situation.
So whether you’ve got bad credit, no credit history, or low income, when you apply for a guaranteed car loan you’re essentially looking for a subprime auto loan from a trusted lender or network that will guarantee to help you find an auto loan despite your financial situation.
But before you go rushing out to buy that shiny new sports car, keep in mind that these loans often come with high interest rates and less flexible terms. So make sure to do your research and shop around for the best deal for you.
We’ll get into the details of how to find online auto loans with bad credit in just a bit. For now, let’s make sure you know everything there is to know about bad credit vs. good credit.
What Is Good Credit in Canada?
Good credit in Canada typically means having a high credit score, which ranges from 300-900. A score above 650 is generally considered to be good, and a score above 800 is excellent.
Good credit can make it easier for you to get approval for loans and secure lower interest rates. It shows lenders that you are responsible with your finances and have a history of making timely payments.
Good credit can also come in handy when applying for rental housing or even certain jobs. However, it’s traditionally been necessary as part of the auto loan approval process, too.
That being said, having bad credit doesn’t mean you won’t ever qualify for an auto loan; it just means that you may need to work on improving your credit.
You can do so by making timely payments, keeping your credit utilization low, and monitoring your credit report for errors. Overall, good credit can open up many opportunities and make life a little easier, especially when you’re in the market for a new car.
What Affects Your Credit Score?
Does simply paying your credit card on time improve your credit score? Is that good enough to qualify for great rates on an auto loan? It helps, yeah, but it’s not just about paying your bills on time. Here’s a brief breakdown of what affects your credit score.
Payment History
Your payment history, or whether or not you’ve paid your bills on time, is one of the biggest factors in determining your credit score. Late payments, missed payments, and bankruptcy can all negatively impact your payment history and in turn, lower your credit score.
On the flip side, consistently making on-time payments can improve your payment history and boost your credit score. It’s important to note that payment history accounts for about 35% of your overall credit score, so it’s crucial to make sure you’re staying on top of payment deadlines.
Credit Usage
Generally speaking, using too much credit can lower your score, as it suggests you may be stretched financially. On the other hand, not using enough credit can also have negative effects, as it leaves little information for creditors to judge your creditworthiness.
The best strategy is to use credit responsibly by always making on-time payments and staying within 30% of your credit limit. By managing your credit usage in this way, you’ll likely see a positive impact on your credit score over time.
Length of Credit History
Longstanding credit history can indicate responsible financial behavior and demonstrate that you know how to handle various types of credit over a long period.
On the other hand, if your credit history is short or absent altogether, it can signal to lenders that you may not have enough experience managing debt.
However, the length of your credit history isn’t the only factor that goes into determining your score. As mentioned above, payment history and the amount of available credit also play a significant role. So don’t stress too much if you haven’t had a lot of time to build up your credit history.
Credit Checks
When it comes to hard credit checks, it’s important to know the difference between them and soft credit checks.
Soft credit checks, also known as soft pulls, occur when a lender or company checks your credit for pre-approval offers or to see if you’re eligible for certain financial products. These don’t affect your credit score at all.
Hard credit checks, on the other hand, are performed when someone is applying for a loan or line of credit and can hurt your score.
Each hard check can lower your score by a few points and multiple hard checks in a short period can signal to lenders that you’re desperate for credit, potentially making them less likely to approve your application.
What to Know About Bad Credit Auto Loans
If you’ve taken a look at the above factors and have found that you’re unable to improve in any of the areas then it’s likely that you need to look for a bad credit auto loan while you work to improve your credit score.
What exactly are bad credit auto loans, though? They’re similar to a guaranteed car loan in that they’re designed to help you access auto financing regardless of your financial situation. After all, everybody deserves access to reliable transportation.
Bad credit car loans are similar to regular car loans. They typically just come with some additional steps and considerations.
First and foremost, bad credit car loans will typically come with higher interest rates and possibly a smaller loan amount. It’s important to make sure you can actually afford the payments on the loan before committing to it.
In addition, bad credit auto loans may require a larger down payment, so it’s crucial to factor that in as well. In general, it can be a good idea to try and come up with a larger down payment if you have bad credit. This helps you have slightly more negotiating power.
Before applying for one of these loans, do your research and make sure you understand all the terms and conditions so you can make the best decision for your financial situation.
Ultimately, while bad credit auto loans can offer an opportunity for those with less-than-perfect credit to purchase a car, it’s important to fully understand what you’re getting yourself into.
What Are the Interest Rates for Guaranteed Car Loans?
As we’ve mentioned, guaranteed car loans and bad credit car loans are typically the same. Because they’re designed to help anybody finance a car regardless of their credit score, they tend to come with higher interest rates.
Just how high are we talking here, though? The average interest rate on a regular auto loan in Canada hovers around 5% to 6%. With a guaranteed car loan, you might be looking at a loan with an interest rate that starts at 6% and goes all the way up to over 46%.
The final interest rate will depend on your full financial situation and credit history. For example, if you have poor credit but a high-paying job, you might be able to snag lower interest rates than someone who has okay credit but a history of years of missed payments.
When it comes down to it, the higher your credit score, the lower your interest rate will be. This is a simple fact that we, unfortunately, can’t change. This is why it pays to work towards improving your score before applying for any big loan.
Your Options for Poor Credit Financing
So, you’re ready to finance a car and think a guaranteed loan is right for you. What are your options when it comes to auto financing? Traditionally, you’ve only had one option. Most people used to have to visit traditional lenders or banks to ask for a loan.
These days, you’ve got more options (like CarsFast, a platform designed to get you better rates and lower monthly payments; but we’ll get into that in just a bit).
If you have bad credit then your best option is to seek out a subprime lender. These lenders specialize in working with borrowers who have poor credit or limited credit history. At CarsFast, we work with subprime lenders and dealers nationwide ready to lend to you.
However, another option is to enlist the help of a co-signer with better credit or to put down a larger down payment on the car to compensate for poor credit.
It may also be worth considering buying a used or older car rather than a new one, as this can make approval for poor credit financing more likely.
Ultimately, it may take some extra effort and patience, but poor credit does not necessarily mean being unable to obtain an auto loan. In fact, in today’s digital world, it’s easier than ever to find an auto loan you qualify for regardless of your credit history.
How a Bad Credit Auto Loan Can Help Improve Your Credit Score
While we’re talking about improving your credit score, it’s worth mentioning one thing. Having a bad credit auto loan, or any type of auto loan for that matter, can help improve your credit score!
As with any loan, making on-time monthly payments is vital in boosting your score. And since auto loans tend to be more affordable and have longer repayment terms than other types of loans, they can be easier for borrowers to manage and stick to their payment schedule.
Additionally, auto loans often require a down payment, which can also work in your favor by demonstrating responsibility and improving your debt-to-income ratio.
So if you’ve been searching for ways to improve your credit as you start your auto financing journey, know that your auto loan can help you improve your credit history down the road. It might just end up being a win-win situation for you financially.
Apply for Subprime Auto Loans With CarsFast
So, can you get a guaranteed car loan with bad credit? You bet! At CarsFast, we’ve not only made it possible, but we’ve made the loan application process simple, too. Our goal is to ensure that no Canadian is shut out of the auto loan market.
Regardless of your credit history, we’ve got over 350 dealerships in our network ready and excited to work with you. What do you have to do to get started? Just fill out a simple form.
Click here to start your application today.