When you need to finance a car with less than perfect credit, there are some things you can do to increase your chances of successfully completing the loan. Check out our tips for buying a car with poor credit.
At Canada Auto Loan, we help buyers with good, fair, bad or no credit find auto financing. We even work with car shoppers who've dealt with tricky credit situations like a bankruptcy, consumer proposal or repossession.
However, we believe that getting approved for the auto loan isn't the end goal. It's only the beginning. The goal should be completing the loan successfully while repairing your damaged credit at the same time.
We work with dealerships throughout Canada that report your payments to one or both of the national credit bureaus (TransUnion and Equifax). You stand to greatly improve your credit score by the time the loan is paid off if you make every payment on time and in full (while keeping up with the rest of your obligations).
4 Tips for Buying a Car with Poor Credit
These tips can help you increase your chances of successfully completing an auto loan.
Budget for the Additional Costs of Car Ownership
The cost of financing a car goes well beyond its sticker price. You also must consider the tax and license fees associated with buying a car. You must factor in the interest charges that will accumulate over the loan term as well. And don't forget about auto insurance; lenders will require that you have full coverage insurance when financing a vehicle. Other costs of car ownership that should be accounted for include fuel and maintenance, which can include everything from periodic oil changes to tire replacement down the line.
Choose an Affordable Car, Not Your Dream One
Going hand in hand with your budget is your vehicle choice. Choosing the right vehicle can be critical to completing a car loan successfully. This is because a borrower can save hundreds or even thousands a year simply from their car choice. For example, a small sedan will not only, on average, be cheaper than a full-size SUV in terms of sticker price, but also in terms of costs of ownership (cheaper to insure, cheaper fuel costs, etc.). We recommend that you choose an affordable car with a payment that doesn't exceed 10-15 per cent of your monthly income.
Keep the Loan Term as Short as Possible
If you have damaged credit, the shorter the loan term the better. Most borrowers with imperfect credit are only able to qualify for higher than average interest rates. And if you extend a term to make the monthly payment lower, it only results in it costing more in the long run due to interest charges. Plus, an extended loan term increases the chances that you will be "upside down" in your loan for much longer. This is when you owe more on the loan than the car is actually worth. Being upside down makes it harder to refinance your loan or trade in your car. We recommend that you choose a car that allows you to keep the loan term at around 36-48 months, or 60 at the most.
Provide a Down Payment
There's plenty of evidence that suggests borrowers who make a large down payment are more likely to successfully complete a loan. When you have bad credit, it can be even more important to have money down. For starters, it can be the difference between approval and denial. Furthermore, it reduces the amount you need to borrow and can make shortening the loan term possible. Both of these things can result in lower interest charges over the loan term. It can also reduce (or eliminate) the time you're upside down in your loan. We recommend that you have a 10 per cent or greater down payment, the higher the better.
Getting Financed Fast
If you are seeking auto financing in Canada and have bad credit, we can help. Canada Auto Loan makes it easy to find a dealership in your area that can get you approved. All you need to do to begin the process is complete our free and easy online application.