Buying a Car with Bad Credit
If you have bad credit, you can still get a loan or a lease to buy a car, but it will be more difficult and with greater limitations. The interest rates and monthly payments will be higher and you will likely only be able to get a smaller loan or lease for a less expensive car.
There are also some ways to help make it easier to get a lease or a loan:
- Check Your Credit Score — do it a few months ahead of time, so you have time to fix any issues and improve your score as a result
- Save Up — if you can make a bigger down payment, you’re more likely to get approved and if you can buy a car outright, then you don’t have to worry about approval at all
- Get Pre-Approved — go to a bank ahead of time and see if you can get pre-approval on a loan
- Target Cheaper Cars — search for vehicles that are less expensive since they would come with a smaller lease or loan
- Contact Specialized Lenders — some lenders specialize in bad credit loans and have more experience with your type of situation
Depending on how bad your credit is, your options may only include getting a smaller loan on a cheaper vehicle or buy it outright. If you are not in desperate need to buy a car, it would help to take more time to save up a larger down payment and improve your credit score as much as you can.
Did You Know?
Interest rates for people with bad credit or no credit range between 9.99% to 29.99% in comparison to 10% or lower for those with good credit. It makes improving your credit and having a big down payment very important!
Buying a Car with No Credit
If you have no credit history, banks and other lenders are kept in the dark when it comes to your ability to make payments on time. Even if you have a good paying job, you are still a higher risk to them because they have no proof of your financial responsibility. This is especially problematic for new immigrants who do not have established credit in the country. Any financial history accumulated outside of Canada is not recognized here. To remedy this, save your money for a bigger down payment, target cheaper vehicles, and find lenders who specialize in working with new Canadians.
It would also help to learn how credit works in Canada so you understand the process and know what to expect. The other way to make getting a lease or loan easier is to build up your credit in Ontario.
Did You Know?
Over 100,000 new immigrants move to Ontario annually, mainly to Toronto and the surrounding suburbs like Mississauga. Around one-quarter of these new Ontarians expect to buy a car within a year or two of their arrival. Some banks now have programs designed to help immigrants with no history buy vehicles at dealerships.
Improve and Build Your Credit
If you want to improve your bad credit or build your credit as a new Canadian, the Financial Consumer Agency of Canada (FCAC)has some suggestions that you can follow:
- Pay all of your bills on time and in full: rent, phone, internet, utilities, etc.
- Pay off any debt as soon as possible
- Avoid making any credit applications beyond what you already have, if possible
- Open a credit, loan or bank account with small limits and pay them off as soon as you can and don’t go over the limit
Taking on loans, bank accounts credit cards with small limits and making payments is a great way to build your credit. They’re easier to obtain and pay off than larger loans for buying cars, for example. They show banks and lenders that you have some history of making payments on time, so they will trust that you can pay off a larger loan too.
These tips also help rebuild your bad credit, along with paying off all debts that were causing your bad credit in the first place. Getting a secure credit card is a suitable method. You have to leave a cash deposit or security fee to guarantee your payments. Since major credit companies get reports of your activity, you help improve your score every time you make a payment.
Summary
Hopefully, these tips will help you realize that your situation is not hopeless, regardless of how bad your credit situation might seem. There are ways of repairing your credit score or building it up from scratch if you are a new Canadian, and there are still ways of buying a car, even with bad or no credit. Always remember to do your research and preparation beforehand, so you avoid any costly mistakes – and you’ll make the whole process a lot easier and less stressful. Good luck!
You might also be interested in these guides:
How Financing and Leasing Vehicles Work?
How Lease Payments Are Calculated?
How to Get Get Out of a Car Lease Early in Ontario?
How to Buy a Car in Ontario as a New Immigrant?
