How To Finance a Car With Bad Credit

At Carloft, we understand that bad things happen to good people and that a bad credit score often means you fell on hard times and could use a hand. Applying for a loan can be stressful, especially if you have been denied loans in the past, so we have put together this article to help explain how to get approved for a car loan if you have a low credit rating.

What is a Credit Rating?

Your credit score gives lenders a three-digit number that ranks how you manage your credit and what risk they might be taking in lending you money. Your credit score ranges from 300 to 900, and the more responsible you are with your credit, the more points you earn. In Canada, a credit score of 660 or more will usually be enough for a traditional car loan. Anything less than that may require a specialized loan, known as a subprime loan.

What is a Subprime Loan?

A Subprime loan is a specialized loan for people with bad credit and people who have yet to establish their credit. There are three levels of subprime loans.

A deep subprime loan is typically required when your credit score is less than 580. Deep subprime borrowers can expect to pay very high-interest rates, as they are seen as a significant risk to lenders.

If your credit score ranges between 580-619, you will likely require a subprime loan to purchase a vehicle. Subprime borrowers are less of a risk for lenders, so while the interest rates will still be higher than traditional auto loans, they will not be as high as deep subprime borrowers. The rate will largely be based on your credit score, but your income and length of employment may also play a factor.

With a credit score ranging from 620-659, you should be able to qualify for a near-prime auto loan. Since your credit score does not factor in why you may have missed a few payments here and there, most people who do not qualify for a traditional auto loan fall into this category. Borrowers can still expect to pay a higher interest rate.

How Can You Reduce the Cost of Borrowing?

While the loan terms for a no credit/bad credit loan might not be as favourable as a traditional car loan, there are a few things that you can do to reduce the amount you pay in interest fees.

  • First, it is a good idea to have a larger down payment. The more money you are able to pay upfront, the less money you will have to borrow. Sometimes a larger down payment may also reduce the interest rate since it can impact the level of risk the lender takes when lending you the money.
  • Next, consider the length of the financing terms. While it may seem appealing to decrease your monthly payments by increasing the term length, this will ultimately cost you more money in interest payments.

Visit Carloft Today!

Whatever your credit situation, Carloft can help you find the best financing terms for your financial situation. It is easy to get pre-approved with our 30-second Credit App making, making it easier to stay within your budget. With five convenient locations in Carleton Place, Cornwall, Kingston, Napanee and Ottawa/Orleans, we service clients from all corners of Eastern Ontario. Whether you are in Pembroke, Perth, Renfrew, Brooke, Kemptville, or anywhere in between, we invite you to browse our used vehicle inventory, where we offer quality used vehicles to fit every budget and lifestyle. From SUVs to convertibles, from sedans to minivans, we have something for everyone. Contact us to learn more, or to schedule a test drive. Our friendly and professional Finance Centre is experienced in finding financing terms for any credit situation, even bankruptcy, making it easier to get the car you want.

Make an Inquiry

    General Contact