Many car dealerships advertise financing for buyers with bad credit or no credit at all. For those who have less than ideal credit, you can get a loan to buy a car, but due diligence is required to ensure the availability of credit conditions. These steps can help low-credit consumers find car loans that won't break the bank.
1. Know the score
The first step for potential car buyers who suspect they have bad credit is to find out exactly how low their ratings really are. Consumers can access their credit reports and accounts at both Equifax Canada and TransUnion Canada, two credit bureaus in the country. Overall, a score of 650 or more is considered good credit risk in Canada, while below that number buyers fall into the subprime lending category. This often means higher interest rates.
2. Save down payment
In many cases, buyers can get a lower interest rate even with bad credit by investing in a car. To get better terms, a 10% down payment is often enough. This means that buyers interested in financing a vehicle for $ 10,000 should expect to set aside at least $ 1,000, especially if they have a credit rating below 650.
3. Consider that you are subscribed
Those who have a trusted family member or friend who has good credit and are willing to sign a car loan can afford the best financing package. However, this person must pass a credit check and agree to serve as a guarantor if the loan is not repaid.
4. Shop around
Subprime lending customers can often pay a car loan in the amount of 9 to 10 percent, compared with 3-4 percent for those with higher credit ratings. Buyers need to know these numbers when they apply for financing. Car loans with an interest rate of more than 10 percent are not worth the cost, so it makes sense for buyers to get several different offers before proceeding with financing.
5. Do the math
In addition to obtaining information about the expected interest rates before purchases, buyers should know what they can afford and adhere to this price range. This means calculating your target purchase price based on the total amount you expect to pay, not the monthly payment you can afford. Shopping with a monthly payment often means agreeing to a longer loan term, which is usually not a good financial strategy when it comes to buying cars.
6. Provide documentation
The best way to get a profitable car loan, despite a poor credit rating, is to establish good faith in other ways. When buying a loan, consumers should have copies of the latest payment receipts, utility bills and other documents confirming their ability to generate income and pay off debts.
Although bad credit auto loans are common, a low rating does not mean acceptance of the first offer. Training and research can help consumers qualify for better interest rates and shorter terms, saving thousands of them over the duration of the financing contract.