What to Do if You Need a Car But Have Bad Credit in Canada

Having a car is often essential for getting to work, running errands, and taking care of family responsibilities. But what if you need a car and have bad credit?

 

Many people find themselves in this situation and it can feel overwhelming.

 

Don't worry! There are still ways to get a car even if your credit score isn't perfect. This article will walk you through your options in a simple and easy-to-understand way.

Understanding Bad Credit

First, let’s clarify what "bad credit" means. Your credit score is a number that represents your creditworthiness – essentially, how likely you are to repay borrowed money.

 

Scores typically range from 300 to 850. A score below 580 is considered poor. Bad credit can result from missed payments, defaulted loans, or high credit card balances.

 

Why Bad Credit Makes It Harder to Get a Car

When you have bad credit, lenders see you as a higher risk. They worry that you might not make your car payments on time.

 

As a result, they might charge you higher interest rates or even deny you a loan altogether. However, this doesn't mean you can't get a car. You just need to know where to look and what to do.

 

Steps to Getting a Car with Bad Credit

1. Check Your Credit Report

Start by checking your credit report for any errors. Sometimes, incorrect information can lower your score.

 

You can get a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once a year. If you find any mistakes, dispute them to potentially boost your credit score.

 

2. Set a Realistic Budget

Determine how much you can afford to spend on a car. Consider not just the monthly payments, but also insurance, fuel, maintenance, and registration fees. Be honest about what you can afford to avoid stretching your finances too thin.

 

Click here for our helpful guide on budget-setting for a used car.

 

3. Save for a Down Payment

The larger your down payment, the better your chances of getting approved for a loan. A significant down payment reduces the lender's risk and shows that you are serious about paying off your loan.

 

It can also lower your monthly payments and the total amount of interest you'll pay over the life of the loan.

 

4. Consider a Co-Signer

If you have a family member or friend with good credit, ask them to co-sign your loan. A co-signer agrees to pay the loan if you can't, which reduces the lender's risk.

 

This can improve your chances of getting approved and may get you a lower interest rate. Remember, though, that if you miss payments, it can hurt your co-signer's credit.

 

5. Explore Different Lenders

Don't assume the first offer you get is the best. Compare loan offers from various sources, including banks, credit unions, and online lenders. Credit unions, in particular, often have more flexible lending criteria and may offer better terms for those with bad credit.

 

6.Consider Buy Here, Pay Here (BHPH) Dealerships

BHPH dealerships finance car purchases directly rather than through a bank or credit union. They often cater to people with bad credit. While these dealerships can be a good option, be cautious. BHPH loans usually come with higher interest rates and less favorable terms. Make sure you understand the contract fully before signing.

 

7. Look for Special Financing Programs
Some dealerships offer special financing programs for people with bad credit (like us!). These programs might have higher interest rates, but they can help you get a car when other lenders won't.

 

Be sure to read the fine print and understand the terms of the loan.

 

8. Choose a Less Expensive Car

Opting for a more affordable, reliable used car instead of a new one can make it easier to get approved for a loan. A lower purchase price means you need to borrow less money, which reduces the lender's risk and might lead to better loan terms.

 

9. Improve Your Credit Score

While this isn't a quick fix, improving your credit score can make a big difference. Pay your bills on time, reduce your debt, and avoid applying for new credit before getting your car loan. Even a small increase in your credit score can help you get better loan terms.

 

Ready to Get Started?

Needing a car but having bad credit can be challenging, but it's not impossible. By checking your credit report, setting a realistic budget, saving for a down payment, considering a co-signer, exploring different lenders, and choosing a less expensive car, you can increase your chances of getting approved for a car loan.

 

Remember, it's important to read all loan terms carefully and make sure you can afford the payments before committing. With patience and planning, you can get the car you need and work towards improving your credit for the future.