Getting a Car Loan With Bad Credit in Canada
What You Should Know
- The interest rates for a bad credit car loan typically range between 11.99% - 29.99%. The interest rates can be even more in some cases.
- The interest rate depends on one’s unique financial situation. Factors such as employment, bankruptcy, assets, and liabilities will all affect the loan approval.
- Individuals with bad credit rarely get approved for a loan from traditional lenders like banks and credit unions.
- Having a co-signer or making a down payment can increase your chances of getting approved for a loan.
- Getting a car loan and paying it off on time can help improve your credit score.
Many Canadians rely on cars for their daily commute. Cars can be expensive, and most people get an auto loan to buy a car. A person with a good credit score can easily qualify for a car loan with a low interest rate. On the other hand, consumers with a low credit score can also get a loan to buy a car; however, similar to the case of mortgage interest rates, they usually get approved for a loan at a much higher interest rate. If you have a bad credit score, you may find it difficult to secure financing from traditional lenders such as banks and credit unions, but you may be able to get an auto loan from other lenders.
When paid off timely, bad credit car loans can help rebuild your credit score, and when your credit score has improved, you may be able to refinance your car at a lower interest rate.
Online Dealers and Lenders for Bad Credit Car Loan
| Company | Type of Company | Provinces Serviced | Google Reviews Rating (Updated February 2, 2023) | Number of Employees on LinkedIn (Updated February 2, 2023) |
| Auto Loans and Online Vehicle Delivery Company | ON | 4.9 (882 reviews) | (Page not claimed) | |
| Online Vehicle Retailer | ON, BC, AB, SK | 4.6 (1.2K reviews) | ||
| Finance Division of Automotive Dealer Group AutoCanada | ON, BC, AB, SK, MB, NB | 4.2 - 4.9 (Varies with location) | ||
| Auto Finance Network | All Provinces | N/A Reviews may be available on other platforms | employees of Lending Arch | |
| Auto Loan Approval Service | ON, BC, AB, SK, MB, NS, NB, NL, PEI | N/A Reviews may be available on other platforms | ||
| Auto Loan Approval Service | ON, BC, AB, SK, MB, NS, NB, NL, PEI | N/A Reviews may be available on other platforms |
What Is Bad Credit in Canada?
Credit scores in Canada are in the range of 300 - 900. There are two main credit bureaus in Canada – Equifax, and TransUnion. Most traditional lenders require you to have a good or excellent credit score to qualify for a loan, as individuals with a bad credit score are perceived as more likely to default. The following table shows credit score classification in Canada:
| Rating | Equifax Credit Score | TransUnion Credit Score |
| Excellent | 760+ | 800+ |
| Very Good | 725 - 759 | 720 - 799 |
| Good | 660 - 724 | 650 - 719 |
| Fair | 560 - 659 | 600 - 649 |
| Poor | 300 - 559 | 300 - 599 |
The credit score models of both bureaus are slightly different, and a credit score of over 660 may be considered a good credit score in general. A score lower than that can be a result of factors such as missed or late credit payments, too many credit checks in a short period of time, bankruptcy, identity theft, and incorrect details on the credit file. If you don’t know your credit score, you can check your credit score easily through your bank (if it offers this service) or several online services.
Factors to Consider Before Getting a Bad Credit Car Loan
When getting a car loan for bad credit, several factors would affect the total cost you end up paying. Listed below are some factors you should consider:
Interest Rate
One of the main factors to consider is the interest rate for which you will be approved. Individuals with bad credit scores usually get approved for a much higher interest rate than individuals with good credit scores. While individuals with good credit scores can expect to pay interest at a rate of prime rate + 0.5% to prime rate + 1.5% for used cars, individuals with bad credit scores usually have to pay interest at a rate of 11.99% - 29.99%. The interest rate can be even more in some cases. New cars are often financed in-house by car companies, and their interest rate depends on the car brand. The example below shows the difference in total interest paid at the end of the term for two different interest rates. We can assume that the person with Loan A has a better credit score than the person with Loan B.
| Loan Conditions | Loan A | Loan B |
| Loan Amount | $20,000 | $20,000 |
| Loan Interest Rate | 8.99% | 15.99% |
| Length of Term | 5 years | 5 years |
| Monthly Payment | $415 | $486 |
| Total Amount Paid | $24,904 | $29,175 |
| Total Interest Paid | $4,904 | $9,175 |
The above example shows that the person with Loan B would end up paying much more interest than the person with Loan A, despite the loan amount and length of the term being the same. Use our loan calculator to compare more scenarios.
Length of Loan Term
The length of the loan term or amortization period is the time over which the loan is paid back. Having a longer term length means that your monthly payments would be lower; however, a longer term also means that you would end up paying more interest over time. The example shows the difference in interest paid over two loan terms with different term lengths.
| Loan Conditions | Loan A | Loan B |
| Loan Amount | $30,000 | $30,000 |
| Loan Interest Rate | 15.99% | 15.99% |
| Length of Term | 2 years | 5 years |
| Monthly Payment | $1,469 | $729 |
| Total Amount Paid | $35,250 | $43,763 |
| Total Interest Paid | $5,250 | $13,763 |
In the above example, the person with Loan B would end up paying much more interest than the person with Loan A, despite the loan amount and interest rate being the same.
Additional and Hidden Fees
In addition to the rate of interest and amortization period, you must also be aware of the additional fees you may be charged. The dealers or lenders may charge you processing fees, administration fees, or service fees. In addition, you may also be charged vehicle cleaning or preparation fees and more fees associated with the vehicle. You should always talk to the dealer and read the contract carefully before signing it so that you are not met with unexpected charges later.
Get a Car Loan with Bad Credit
Several lenders are willing to give you a loan even if you have a bad credit score. Financial institutions make decisions regarding auto loans based on the following factors:
- Downpayment that you can make
- Your credit history
- Your income, employment, and other information, such as annual income, time at your current job, time at current residence, etc.
- The vehicle specifications, including make, model, year, mileage, and cost
The following steps can help you get a car loan:
1. Set a Budget
The first step in buying a car is setting a budget. You should assess what monthly payment you would realistically be able to afford after paying your monthly rent, utilities, and other essentials. Alternatively, you can visit websites of online retailers or auto loan companies such as canadadrives.com and fill out their pre-approval or application forms. They can help you determine what you can afford and even send you car offers. Most dealers and online lenders offer pre-approval, which could give you an idea about the monthly payment. Remember that you may have to pay a down payment and a higher interest rate because of your credit score.
2. Talk to Car Dealerships to Get Quotes
The process with online dealers and car loan companies is simple. After filling out their application, they determine what you can afford and come up with offers that would best suit your requirement.
If you decide to go with a local dealer, the next step would be to talk to car dealerships and retailers near you. Auto financing companies and lenders usually offer their rates through car dealerships, and you should ask dealers about the same. If dealers cannot offer you a solution, you could talk to private lenders in your area. Dealerships usually have an inventory of new and used cars, and you can find cars that fit your budget and affordability.
While dealers and lenders are usually able to offer better interest rates and payment plans for new cars, used cars may be much cheaper than new ones. Your unique financial situation would determine whether you qualify for a new car. Once you have a better idea of the vehicles that could fit your budget, you should get offers or quotations from different dealers and lenders and compare them.
3. Compare the Offers and Submit Documents
Depending on factors such as car specifications (make, model, and year), term length, payment frequency, and annual income, dealers would give different quotations. The quotation is just a rough estimate of the payment you can expect to make; the final amount may differ. Some dealerships may require you to make a down payment, pay additional fees, or have a co-signer. You should carefully consider all these factors and find the best monthly payment option to fit your budget. Before finalizing the preferred option, you should carefully read their contract and ensure you know all the terms and conditions.
4. Gather and Submit Documents
Once you have zeroed down on a lender or dealer, you will be required to submit several documents to get the loan. These documents include:
- Proof of income and employment
- Bank Account Details
- Driver’s License
- Address Proof
- Proof of Assets and Liabilities
How to Improve Chances of Approval for Bad Credit Car Loan?
Lenders consider different factors before approving loans for borrowers. Some lenders have a minimum income requirement as well. In general, lenders require borrowers to have a monthly income of at least $1,800 - $2,000 before taxes. If your income is lower than that, you should consider getting a better-paying job before applying for a car loan. Additionally, there are other ways to increase your chances of getting approved.
- Save up for a down payment: Even though car loans with zero down payment are available, making a down payment might increase your chances of getting approved for a car loan. Additionally, a down payment can reduce the loan amount and the interest you have to pay on it.
- Trade-in your old car: If you already have a car that has some resale value, you could trade it in to lower the cost of the new car. This might also help you get approved for financing for the new car.
- Get a co-signer: Having a co-signer who has a good credit score can help you get a better interest rate for financing your car and can also help you get approved.
Advantages and Disadvantages of Bad Credit Car Loans
| Advantages | Disadvantages |
| You can get a car even if you are not deemed creditworthy. | The interest rates offered can be very high. |
| If you make repayments on time, your credit score will improve. | You are required to have a minimum income, down payment, or co-signer. |
| Flexible terms may be available. | There can be additional or hidden fees. |
Bad Credit Car Loan Lenders
With a bad credit score, you may find it difficult to get approved for a loan from a traditional bank or credit union. However, several lenders in the market are willing to work with all types of credit scores. There are some online dealers and lenders that allow you to apply for a car loan online.
Autoloans.ca is a car loan provider with 27 lending partners advertised on their website. It currently offers its services only in Ontario. The company works with all types of credit, including good credit, bad credit, unestablished credit, and bankruptcy cases. Customers can select from over 5,000 new and used cars. The process is completely remote, and the selected car is delivered to your doorstep. They have a 30-day vehicle exchange policy.
Process:
- Fill out an online application.
- Autoloans.ca contacts you to help you find the vehicle of your choice at the price you can afford.
- The car is delivered to your doorstep.
Canada Drives is an online platform for buying cars that offers financing options for all credits. Buyers can buy a car online from their list of certified used cars, and the car is delivered to their doorstep. The cars come with a warranty and have a seven-day love it or return it guarantee. They currently service Ontario, British Columbia, Alberta, and Saskatchewan.
Process:
- One option is to browse online inventory and select a car. If you are not sure what you can afford, you can first get pre-approved
- Next, you can complete the purchase online. You can get approved for financing and get offers for trade-in online.
- Once the purchase is completed, the car is delivered to your doorstep.
Canada Drives is an online platform for buying cars that offers financing options for all credits. Buyers can buy a car online from their list of certified used cars, and the car is delivered to their doorstep. The cars come with a warranty and have a seven-day love it or return it guarantee. They currently service Ontario, British Columbia, Alberta, and Saskatchewan.
Process:
- Fill out an online application.
- Their representative contacts you to see what you qualify for.
- They work with you to find the car best suited to your budget and need.
CarsFast has an online approval process in which the applicant can submit an online application in less than two minutes and get approved. They give you the best rate options to compare from. The buyers can shop for one of their vehicles from over 350 dealers across the country.
Process:
- Fill out the online application in about two minutes.
- Get approved and get rates to compare.
- Shop from one of their 350 partner dealerships across Canada.
Car Loans Canada allows you to submit an online application for pre-approval, based on which they recommend some cars and dealers for your need and budget. They work with all types of credit to find the best deal. They currently service Ontario, British Columbia, Alberta, Saskatchewan, Nova Scotia, New Brunswick, Prince Edward Island, and Newfoundland and Labrador.
Process:
- Fill out their online application form.
- Their representative contacts you to discuss your financial eligibility. They will give you the best rate for your situation.
- They will discuss vehicle options to fit your needs.
- After narrowing down the best cars, visit the dealership for a test drive. You can complete the loan formalities and take the car.
Canada Car Loans is a loan approval service that has helped finance over 250k cars in Canada. They are able to offer car loans to 99% of the applicants. The process is quick and easy; according to them, the applicant could be driving their new car the next day.
Process:
- Fill out the online application in about two minutes.
- A representative calls you to review your application and match you with the best possible offers.
- You can pick the best offer for your need and finalize the paperwork.
Apart from the above, many lenders require you to apply for financing through a car dealership. Listed below are some lenders who could finance your car:
- iA Auto Finance
- Rifco
- Eden Park
- Carma Auto Finance
- Northlake Financial
- Source One
- AutoCapital Canada
- Axis Auto Finance
Refinancing Your Car Loan
If you have a bad credit score, you will likely be approved for a loan at high interest, however, making your loan payments will have a positive impact on your credit score and you will likely see it improve over time. Once your credit scores have improved, you may be able to apply for refinancing of your loan. With improved credit scores, you can refinance your loan at a lower interest rate and save on your interest payment.
Several lenders offer the option of refinancing. You can check your credit score for free from time to time and talk to lenders about refinancing once your credit score has increased. Some contracts may have terms and conditions regarding refinancing a car loan, and you should always read your contract carefully to be aware of them.
Car Loan Rates for New Credit
New Credit is treated differently from bad credit. If you are new to Canada, you may still be able to get the car loan interest rate offered to individuals with a good credit score. That said, you may be required to meet other requirements, such as having resided in Canada for a specified period of time or a minimum income. Newcomers are highly likely to get approved for a car loan in Canada.
Bottom Line
It may be difficult to get a car loan with a bad credit score, but it is not impossible. Even though a bad credit score is usually classified as a score of 559 or less, however, many traditional lenders require a minimum credit score of 650 or more.
Individuals with a bad credit score will likely have to pay interest at a much higher rate than individuals with a good credit score. However, if you make your payments on time, your credit score will improve over time, and you may consider refinancing your vehicle at a lower interest rate once your credit score has improved.