There are finance companies and other establishments that offer bad credit car loans to consumers with damaged credit, and the prospects are often better for such applicants compared to borrowers with no history. In times when the economy is improving, more lenders are willing to accommodate customers with different credit profiles, and new players quickly expand and gain a market share. What is more, lenders have different criteria, and your credit profile is not the only factor they take into account. Your score is a more important factor when you apply for a larger loan, for example, a mortgage because financial establishments take more risk. Even if you are considered a moderate- or high-risk borrower, some finance companies will be willing to offer a near-prime car loan.
Car Loans in Canada
Bad credit car loans are available from finance companies, credit unions, and banks and major banks such as the Royal Bank of Canada, Toronto-Dominion, and others. Consumers are offered old and new auto loans with variable and fixed rates and flexible amortization and repayment schedules. Some banks advertise secured options with lower interest rates. Finance companies also offer funding and advertise quick processing and approval. While banks take longer to review and process applications, finance companies advertize quick approval within 1 or 2 business days. There is an option to apply together with a cosigner, but many lenders are unwilling to approve applicants with a history of bankruptcies. Many finance companies in Canada also run a credit check.
Loan Types – Options and Differences
Secured Bad Credit Car Loans
Lenders usually offer lower interest rates compared to unsecured financing because the vehicle itself guarantees repayment. The rate can be as low as 4 percent but this depends on your credit profile. Financial institutions usually offer funding in the amount of $20,000 – $30,000, and the interest rate is usually fixed over the repayment term. Secured car loans for people with questionable credit are offered with:
• 95 – 100 percent approval rate
• No down payment required
• Or lower down payment compared to unsecured options
• Varying amounts based on the collateral
Unsecured Bad Credit Car Loans
This option is more expensive because of the lack of collateral and the higher risk involved for lenders.
• Less risky for applicants
• Higher down payment
• More difficult to find
• Interest rate of 7 – 10 percent or higher
Compared to secured options, finance companies offer smaller amounts. Even if the borrower defaults, the vehicle has not been pledged as collateral and cannot be repossessed. Besides, lenders take even more risk by offering loans to borrowers with damaged credit, and the terms are less competitive.
What Happens if You Have Bad Credit
Finding auto financing with competitive terms can be a challenge if you have poor or no credit. Some banks are willing to accept applications from borrowers with а borderline score provided that they have stable income and good debt to income ratio. If your score is low, you may want to look into non-traditional lenders because they have more lenient requirements. They will factor in the condition of the vehicle, the length of the term, amount required, down payment offered, etc. Auto loans for people with poor credit are available online as an alternative to the frustration of dealing with banks and dealerships. Some lenders offer auto financing to consumers with a history of repossessions, consumer proposals, maxed out cards, written off accounts, collections, and late or missed payments. This is one alternative for consumers with bad credit and major issues who plan to purchase a vehicle. Another option is to try and improve your credit profile and apply with your local union or bank.
What Are Bad Credit Car Loans
Basically, this is a subprime or near-prime vehicle loan with a higher interest rate compared to standard solutions. The term varies from lender to lender and is usually between 36 and 72 months. Some finance companies offer terms of up to 8 years. A longer term, however, means paying more in interest charges. The monthly payment is based on the term, APR, and other factors. When applying for a bad credit car loan in Canada, consumers must be employed to qualify.
There are two types of financing offered, new and used car loans, and the latter usually go with higher rates. Both options are available through some finance companies, regardless of your credit profile. Some non-traditional lenders even offer financing to customers with past bankruptcies but this is rather unusual.
Find a Poor Credit Car Loan in Canada
There are several options to look into, your local bank, your insurance company, bad credit lending services, and peer to peer lenders. If you are an existing customer, your local bank is your first stop because it is more likely that their loan officers treat you favorably. The same goes for your insurance company. A non-traditional lender is yet another option but make sure that you deal with an established and reputable finance company. To improve your chances of getting approved, you may want to bring some documents with you, including personal references, photo ID or driver’s license, and utility bills such as electricity, water, gas, or other bills. Make sure you bring recent pay stubs as well. If bad credit lenders are not an option for you, you can check with peer to peer lending services. What you do is create a profile on an online platform of your choice and post a listing that indicates the purpose and loan amount. There are investors that are willing to offer auto financing to consumers with a less than perfect score. The interest rate varies but if you are lucky, you can get a loan with a rate of about 7 percent. Finally, one option to improve your chances is to offer a significant down payment. You may ask your family for a loan or draw on your line of credit.
Charles Mulstein says
This is a well written article. This helped me decide that my best chance to get a loan is to go to my local bank. I think I should walk in with a down payment of a certain percentage, but I can’t decide what would be enough to show initiative. Would the reason behind bringing bills with me be that they will potentially give me a lower monthly payment? Thanks for sharing this.
Charles, the bank wants to make sure that you will be able to repay the car loan and anything you can do to reassure them will help you with the terms of the loan. As for the down payment this is entirely up to you.
Great article,best one I’ve see yet.I’m also planning on purchasing a vehicle next year but my credit is very poor (560 to be exact).That might be a red flag for lenders I suppose.
There are many lenders specializing in bad credit car loans, so I wouldn’t be too concerned about that. You will probably have to pay higher interest rate to compensate the lender for the additional risk, but you shouldn’t have problem getting an auto loan with bad credit.
Anne Evans says
What impact does having a co-signer have on a bad credit loan for a car.? I have bad credit but I am guaranteed a co-signer if I require it!
I guess it depends on the lender. Having a co-signer is always good, especially if your credit is not perfect.
Hey how much are lenders allowed to charge in % does anyone know ??
How much interest rate I should expect on a credit score of 630??
marc rajotte says
Sam, thx. Im finishing up an MA in Counselling; am in my internship but am in a full time job at my internship. Your article helped me in my ongoing wish to find my dream Jeep Wrangler…and to just face the higher interests for now. I am sacked with a huge STUDENT AID LOAN and some of these car dealers are willing to lend me some money; it is obvious my success is to just pay on time now that I have a fine salary.
if your income is odsp will you be able to find a lender
I have decent credit, but with a recent mortgage I am seen as fully extended debt to income wise. Are the lenders that consider lower credit also more lenient when it comes to these factors?
i want to lease a new CLS63S mercedes thru my company, the car price is $130,000 and im going to put down $50,000 as a down payment, my company sales exceed 1M Yearly, and my credit score is 660 but i only have 3500 in total credit which ive only used 2%. ive only been on the credit bureau for a couple years havent missed any payments. i do have a cosigner but his credit score is around 625 but has $72,800 in credit and only used 3% but missed 1 credit card payment last year febuary. with a $50,000 downpayment on a lease will it get approved thru Mercedes Benz Financial Services?