How to Get Approved for a Car Loan with Bad Credit

If you have bad credit, you’re probably stuck in a vicious cycle that you know all too well.

Here’s how it goes: one of the best ways to improve your credit score is to show that you’re a responsible borrower who makes loan payments on time, but, if you have bad credit, you probably can’t qualify for a car loan.

In turn, you can’t prove you’re a responsible borrower. It’s the ultimate catch-22.

But here’s the good news. It is possible to qualify for a car loan with bad credit. The process may look a little different than it would for someone with excellent credit, but that’s okay.

You’ll be on your way to building your credit score and even better, you won’t be stuck taking the bus or spending money on an Uber every time you need to go somewhere. It’s a win-win.

Here’s the step-by-step process for how to get approved for a car loan with bad credit.



1. Know Your Credit Score



Canadian Man Filling Out Car Loan ApplicationWhether you think your credit score is good, bad or somewhere in between, it’s important to actually know what it is. Never checked your score? It’s ok.

You’re not alone. Less than half of Canadians have ever checked their credit score and only 14% of Canadians check their credit score every year. Yikes. There are a few reasons this may be problematic.

For starters, it’s important to check your credit report for fraud and confirm that everything that is listed on your report – including bank accounts, credit cards and loans – is accurate.

Secondly, it’s much harder to improve things that you don’t track, which can be summed up in one of the most popular business-related quotes: “If you can’t measure it, you can’t manage it.”

Even though this quote is commonly used in business, it’s also true for your credit score. If you don’t know what it is, it will be much harder to improve upon. Beyond that, knowing your credit score will empower you to make the best decision and advocate on your behalf throughout the car loan process. You can order a free copy of your credit report through the credit bureaus TransUnion Canada or Equifax Canada.

Once you know your score, you’ll also have a better idea of how “good” or “bad” it is. According to Equifax, 580 to 669 is typically considered fair, 700 to 749 is considered good, and 750 and up is usually considered excellent. If your credit score is less than 580, it’s generally considered “bad credit.” Luckily, even with bad credit, you can still qualify for a car loan.



2. Set Realistic Expectations



Here’s the lowdown: if you have a bad credit score, it can be harder to qualify for auto loans. When you do qualify, the loans may have higher interest rates. Yet, while having a bad credit score may mean your credit score is lower than you would prefer, you can still get a car loan with workable payments. In fact, your monthly payment for a car loan is determined through three factors:



This is the total cost of the car including fees, vehicle cost, upgrades and taxes.



This is the length of your car loan. LendingArch offers loans that range from 12 to 36 months. This is great news for your wallet because the shorter the loan, the less interest you’ll pay.



Interest rates are determined based on a variety of factors and are calculated separately for each applicant. If you have bad credit, your interest rate may be higher than someone with good or excellent credit, but as long as you pay your payment on time each month, your car loan will report positively on your credit report.

3. Borrow Responsibly

Having bad credit can make your life more difficult (and even thousands of dollars more expensive), so it’s in your best interest to know exactly what you’re signing up for when you take on a car loan. You’ll want to make sure that you can pay the monthly car payment and that it fits comfortably in your budget.

As you think about your budget, it’s also a good idea to consider what kind of car you want, as well as any add-ons or extended warranties you may want to purchase. It’s also important to think about how much your insurance will cost.

All of these factors are important because they will affect the total price of your car. It may be worth it to set aside some time to do some preliminary research.

4. Find the Right Lender

There are many different types of lenders, including banks, credit unions, car dealerships that specialize in bad credit auto financing and more. But, not all lenders will work with borrowers who have bad credit scores.

That’s why it’s important to shop around and find a lender who understands your unique financial situation.

For example, LendingArch is committed to working with everyone—Canadians with bad credit, no credit and even those who have declared bankruptcy.

LendingArch works to simplify the loan application process by connecting borrowers with appropriate loan lenders in their area.

If you have bad credit, it is often easiest to work with lenders who specialize in bad credit auto lending because they understand your situation and are dedicated to finding a solution that works for you.

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5. Get Pre-Approved

If possible, it might be a good idea to get pre-approved for a car loan because it allows you to see what your options are before you ever set foot in a car dealership. In other words, a car loan pre-approval simplifies the process.

Pre-approval does not mean that you are agreeing to a loan. It simply means that you’re getting a better understanding of your loan options.

Once you know your estimated interest rate and maximum loan amount, you’ll have a clearer picture of the type of car you can afford.

Here the information you’ll need to provide in your car loan pre-approval application:

  • Employment and income
  • Driver’s license
  • Address
  • Estimated down payment

7. Find Your Car and Enjoy

Car Loan Pre-Approval CanadaOnce you’re pre-approved and feel comfortable with the terms offered, it’s time to start shopping for a car.

The likelihood is that you are now more organized, have figured out what you can afford, and have prepared yourself for additional costs like insurance.

By taking care of the financial details in advance, you can enjoy the process of finding a car that is the perfect fit for your lifestyle and budget.

Once you do, you’ll be able to drive away in your new car with the satisfaction of knowing you got the best deal for your current and future self.

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