Three steps to get an auto loan when you have low credit
KEY TAKEAWAYS:
✔ Getting a loan for a safe, reliable vehicle can be difficult when you have low credit.
✔ You could qualify for a better interest rate on a low credit car loan if you have a co-signer.
✔ Use an online car loan payment calculator to see what you can afford.
There are many reasons for needing a vehicle in Canada. Whether you’re a first-time buyer or want to trade up, it’s an expensive purchase and you’ll probably need some form of financing. That means you’ll likely be applying for an auto loan or getting financing from a dealer.
But you’ll need to consider a low credit car loan if you have a low credit score. That’s because banks and other traditional lenders use your credit score to decide whether or not they will take the risk of lending money to you. A credit score ranges from 300 to 900. The higher, the better. The average score is around 650. In an ideal world, you wait until your credit score is high, and you find a great deal on the make and model of vehicle you want before you buy. However, many people can’t wait. If you’ve decided that owning a vehicle is essential to your lifestyle and your credit score makes it hard to get an auto loan, you still have options.
Here are 3 ways to help you get approved for an auto loan if you have low credit. They can help you get on the road faster, with payments that fit your budget.
1. Get a relative or friend to be a co-signer
A co-signer is any other person who is willing to put their name on your auto loan application, making them responsible for the money owing, but ONLY if you stop making payments. When your credit score is not great, but your co-signer has a good score, lenders are more likely to approve your application because there is less risk.
Where to get your credit score
Canadian credit bureaus TransUnion and Equifax use financial and credit history to create a credit report which includes your 3-digit credit score. To get a copy of your report (free once a year) go online to either Equifax.com or Transunion.ca.
Your co-signer can be any adult but ideally, they have a good credit rating and the capacity to make the loan payments if you can’t. Keep in mind that making every payment on time will improve both your credit scores. And the opposite is also true. Missed or late payments can lower both of your scores. Use one of the many online car loan payment calculators to estimate your payments and make sure you can stay on budget.
2. Get financing at the dealership
A used car may be a better option if you have poor credit. Used car dealerships are common in Canada. They operate lots, where you can go to shop in person, and they often advertise their vehicles in online marketplaces like Auto Trader, and Kijiji.
Dealerships have a legal responsibility to provide accurate information about the vehicles they sell and they are typically inspected and serviced by professionals. They will often let you buy a vehicle with a 10 to 20 per cent down payment, and then let you pay it off over time, using easy, on-the-spot financing, even if you have low credit.
What matters most is the long-term cost of owning your new ride. A dealership may offer a lower interest rate because they make a good profit on the sale. On the other hand, getting pre-approved for a low credit auto loan could help you negotiate a lower price. If in doubt, ask an easyfinancial representative to help you compare your options.
3. Get an auto loan for low credit
Even with low credit and no one to co-sign your application, you can qualify for an auto loan. The interest rate will be higher than a conventional loan but you can tailor the payments to fit your budget by shopping for a less expensive make or model.
Because new cars depreciate quickly, meaning they go down in value fast, you often get better value when you buy a used car. And when you spend less, you borrow less, and you may be able to pay off the loan faster. That’s good news for your monthly budget.
We understand that shopping around, comparing prices, and trying to find the best vehicle you can afford takes time and effort, so we offer a simple two-step solution.
Get approved for a loan before you go shopping
Our team can approve a low credit auto loan from $5,000 to $50,000. Knowing what you can afford to spend can help you negotiate a better price. Terms range from 12 to 48 months.
Shop with confidence through our dealer network
We’ll connect you with our coast-to-coast network of automotive dealers. Once they know you’ve been approved for an auto loan, they can help you locate the perfect make and model for your needs.
How we can help
Our auto loans specialists are here to help you at every step if you’ve decided that it's the right time to finance a vehicle. Apply online through our partner LendCare in minutes without impacting your credit score[1]. Get affordable payments with flexible terms and personalized rates to fit your budget.
Disclaimer: This content is intended for informational purposes only and does not constitute financial advice on any subject matter.
[1] To obtain a pre-approval LendCare will complete a soft inquiry with the credit reporting agencies. Soft inquiries do not impact your credit score. LendCare is a wholly owned subsidiary of goeasy Ltd. (TSX: GSY). Learn more about LendCare