Nowadays, it is essential for many Canadians to own a vehicle. Despite the fact that public transportation, Uber and taxis are good options, having your own car is a necessity for most people. However, not everyone can afford to buy a new car, even used. Even with the money available, some people might have trouble getting approved for a car loan because of their bad credit. So, you have to find an option that will allow them to get a car loan despite bad credit.
What is bad credit?
As someone makes requests and uses credit products, such as a credit card, a history, and a credit rating will build up quietly. All credit activities will be reported and collated in a credit file at Canadian Credit Bureaus (Equifax or TransUnion). A strong credit rating is a valuable tool that consumers can use to obtain loans, such as mortgages, lines of credit, and of course, auto loans. There are certain factors that can affect a consumer’s credit rating. If this consumer has been responsible for his credit, paying his bills on time and in full, his credit rating will increase and it will be easier for him to obtain credit and loans.
On the other hand, when a user is irresponsible with his creditor makes late payments, his credit rating will drop. Second, once the same consumer has bad credit, it can be very difficult for them to improve their credit and obtain loans and other credit products.
Credit Rating 101
In Canada, a good credit score averages between 680 and 900, while a rating below 500 means that a consumer has bad credit. There are 5 main factors that will determine how a credit bureau calculates your credit rating.
- Your payment history is 35% of the calculation of your credit rating. When you use credit, then pay your bills (or do not pay them), all your transactions are recorded and kept, which helps you demonstrate your creditworthiness.
- Your debt/usage is up to 30%. This is determined by the amount of your indebtedness, relative to your available credit amount. For example, if your credit card has a limit of $ 5,000, and use it in full month to month, by making only the minimum payments, your credit rating will go down.
- The duration of your credit is 15%. The longer a credit account has been open for use in a responsible manner, the higher your credit rating will be. So, if you have multiple cards and consider canceling one or more, be sure to cancel the most recent ones.
- Credit inquiries recently made by creditors or potential lenders correspond to 10%. Whenever a company checks your credit, your credit rating may be slightly affected. Secondary claims made by a person or company, such as an employer or potential landlord during a background check, do not affect your credit rating. On the other hand, the main audits performed by financial institutions such as banks, lenders, and creditors will cause a slight decrease in your credit rating. If a potential lender sees that you have too many major audits in your file, caused by too many credit applications, your creditworthiness will be in doubt.
- Your credit diversity is 10%. This means that the more you use a variety of credit products, the higher your credit rating will be, subject of course to responsible use.
How to improve your credit rating?
Improving your credit rating is a time-consuming process, but it is very important if you want to be approved for a loan. After all, lenders and creditors want the assurance that you will be able to repay them in full, and a good credit rating is one of the best ways to do it. So, if you have bad credit, you can improve your credit rating gradually:
- Get a copy of your credit report – something you should do at least once a year, even if you are not trying to improve your credit rating. Applying for a credit report is a good way to find out how to improve your credit rating.
- Challenge any errors-Once you have requested a copy of your credit report, you can review it for any errors caused by a lender or creditor reporting an incorrect transaction to the credit bureau or by the office itself.
- Increase your credit limit – if you use more than 35% of your available credit and do not make more than your monthly minimum payments, this may result in a decrease in your credit rating. To decrease the percentage of your credit usage, you can simply increase your credit limit and regulate your expenses.
- Setting up automatic payments – making late payments or forgetting to pay your bills in full is one of the most common problems that cause a drop in your credit rating. Thus, setting up an automatic payment system via your bank will help you stay on track.
- Paying more than the minimum amount While making your monthly payments minimum is a way to avoid any breach, it’s also a way to stay stuck in a revolving debt cycle. To help improve your credit rating, not only must you make the payments on time, but in the highest possible amounts.
What is a car loan for bad credit?
Even if a potential consumer has bad credit, it is still possible for him to obtain a loan for a new or used car from various lenders, creditors, banks and other traditional financial institutions. With a car loan, a consumer with a low credit rating will be able to get financing for a car of his choice with extended payments over a certain period of time and a fixed monthly interest rate that he can negotiate with his lender.
Despite the fact that many lenders do not lend consumer loans to consumers with bad credit, there are many who will. So, if you have bad credit do not give up on the first rejection, and go around the lenders to find one that offers a monthly interest rate suited to your financial needs. Do not forget to take a loan at a fixed rate, which means that your interest rate will not increase over time.
Who can benefit from a car loan for bad credit?
Auto loans for bad credit are specially designed for consumers with a low credit score. Since some lenders reject potential borrower applications with bad credit, and most cars are too expensive to pay off at once, many borrowers will have to go to alternative lenders to get their car loans. Borrowers can then discuss a reasonable and affordable payment plan with their lender, who in turn benefits from their extended activities as they repay their loan over several years.
What types of cars can you get with a car loan for bad?
Lenders who turn to borrowers with bad credit will usually work alongside specific car dealerships. Thus, depending on your lender, the types of cars available for your purchase will be limited to the inventory of the dealer with whom they work. However, in general, you can expect to have access to a wide variety of new and used vehicles at different prices, such as the following brands:
No matter what brand of car you want, your lender will want to be assured of one thing: that you will be able to repay it in full, no matter how long it takes to do it. If you have bad credit, the most affordable options will be slightly used models from previous years and basic models that are not equipped with expensive custom features. However, as long as your lender is assured that you are going to make your payments, you should be able to get the loan.
How to get a car loan approved in Canada if you have bad credit
If you need a vehicle to get from point A to point B, but your credit is less than favorable, do not worry, there are lenders who will give you a loan. That being said, you should prepare in advance. The following will help reassure you and your lender that you are ready to assume the debt associated with a car loan. You should start with:
- Saving – this is an important practice not only for getting a car loan but for your finances in general. Cars, regardless of their make or model, are a big expense that you will pay until you hand it over. Repairs, mechanical work and other vehicle-related expenses (gas, insurance, etc.) must be carefully considered before making your decision. Not to mention the fact that the more you can afford the down payment, but also the payments and interest that will follow thereafter.
- Completing an application – once you have organized all your personal and financial information, and found a legal lender with reasonable rates, you can fill out an application. The application process should be free. In fact, no legal lender will charge you anything before your loan is granted because it is illegal to do otherwise. If your lender is trying to charge you for the application or loan insurance in advance, do not give them any information and move away immediately.
- Doing the following – after your application has been accepted and your loan granted, the best thing to do to prevent your credit rating from falling further and potentially going bankrupt is to make your payments monthly. If you think you may be failing, do not wait until the situation gets worse. Contact your lender immediately and let them know about the problem. Any good lender will be open to negotiation to make more reasonable payments.
Do you need a car loan for bad credit?
If you need a car loan, but you have bad credit, do not panic. As mentioned above, auto title loans orange county who will give you the loan you need with a schedule of payments at a reasonable interest rate. It’s all about finding the right lender for your financial needs. PrêtQuébec can help you in your search. We will be happy to connect you with a lender who will provide you with the right loan.