If you have a bad credit score, finding a car loan can be difficult. Many traditional lenders are reluctant to lend money to borrowers with bad credit, but there are alternative lenders who can help you access the financing you need. Be warned, however, that you’ll typically need to accept a higher interest rate.
Keep reading to find out how to compare bad credit car loans in Ontario and find one that’s right for you.
Compare bad credit car loans in Ontario
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Am I eligible for a car loan with bad credit?
Credit scores in Canada range from 300 to 900. If your score is less than 600, you may have trouble qualifying for a traditional car loan.
But even if you have bad credit, there are still car loan options available. Some loan providers specialize in offering bad credit car loans in Ontario, so it may be easier than you think to access financing.
There are two main options when looking for a bad credit car loan:
Private lenders. A range of alternative lenders, typically online lenders, provide car loans for borrowers with low credit scores. But while there are plenty of legitimate options, there are also some dodgy lenders out there too, so make sure you know how to recognize reputable car loan lenders and common scams.
Dealership financing. You can also find car dealerships that offer in-house financing to buyers with bad credit. It’s a good idea to compare loans from online lenders before visiting a dealership. This will help you determine whether the dealership’s finance offer is a good deal.
Your income is key
Rather than looking at your credit score when assessing your loan application, bad credit car loan lenders will focus on your ability to pay off the loan. With this in mind, they’ll pay close attention to your income and whether it will allow you to make the necessary monthly payments. However, these lenders will class you as a high-risk borrower, so you’ll need to accept higher interest rates and fees.
Eligibility requirements
Bad credit car loan eligibility requirements vary between lenders, but you’ll generally need to meet the following criteria:
18 years of age or older.
Canadian citizen or permanent resident.
Provide proof of ID (such as a driver’s licence or passport).
Have a steady source of income.
Provide proof of employment.
Have an active bank account.
In some cases, a lender may require you to have a cosigner before approving you for a loan. The cosigner will need to be someone with a high credit score, such as a family member, who will become responsible for repaying the money if you default on the loan.
How to find the best bad credit car loan for you
Finding the right bad credit car loan in Ontario is challenging. With a wide range of lenders and loans to consider, it’s important to compare your options carefully before deciding where to borrow.
Keep the following tips in mind to help you find a loan that suits your needs:
Know what you can afford.
The first step to choosing a bad credit car loan is budgeting. Before you start comparing loans, sit down and work out a monthly car loan payment amount you can afford. You’ll need to leave room in your budget for all your regular expenses, plus a little wiggle room for those unexpected bills that always seem to crop up. Just remember that bad credit car loans have higher interest rates than traditional car loans.
Don’t buy on impulse.
Don’t take out a loan you can barely afford for a car you don’t really need right now. You may be better off taking steps to improve your credit score before you buy a new car.
Shop around.
It’s vital that you compare a range of loans before deciding which one meets your needs. Look at the interest rate and fees, loan term, payment schedule and whether you can make extra payments. You could also consider using an online broker like CarsFast or Loans Canada to help compare your options.
Compare offers through pre-approvals.
Applying for car loan pre-approval will allow you to see “quotes” for different loans. While these quotes are only a guide, they can be very useful to help you work out where you’ll find the best deal.
Focus on the overall car price.
If you’re getting financing from the dealer, don’t fall into the trap of focusing on the monthly payment amount and loan term. Instead, shift your focus on the sale price of the car and the total amount of interest you’ll pay.
Understand the pros and cons of short-term vs long-term loans.
Choosing a longer loan term means your monthly payment will be smaller, but also that the loan will cost you more to pay off in the long run. If you can afford the higher monthly payment of a shorter loan, you’ll end up saving money.
Look for repayment flexibility.
Read the fine print to check whether you can make extra loan payments at any time. Also check whether the lender will charge you a fee for paying off the loan early.
Watch out for sketchy lenders.
Unfortunately, sketchy lenders are notorious for targeting borrowers with bad credit. Loan scams are a real risk when taking out a bad credit car loan, so keep the following tips in mind to make sure you’re dealing with a legitimate lender:
Make sure the lender is properly licensed and registered in Ontario.
Make sure the lender has a physical address for its head office and can be contacted via phone and email.
Look for a lender that is transparent about how much your loan will cost overall.
Avoid lenders that offer “guaranteed approval”.
Avoid lenders that use high-pressure sales tactics to try to get you to sign on the dotted line.
How much will a bad credit car loan cost me in Ontario?
There are several factors that affect the total cost of a bad credit car loan. These include the following:
Interest rate. Bad credit car loans are well known for their high car loan rates, so they’ll cost more to pay back than regular car loans.
Fees. Check whether a monthly admin fee or an origination fee applies to your loan. Remember to consider the APR, which is calculated including loan fees, to get a better idea of the full cost.
Loan term. The longer your loan term, the more interest you pay over the life of the loan.
Your credit score. The lower your credit score, the higher the interest rate.
Your income. The lender will consider your debt-to-income ratio and whether you have a steady source of income when calculating your interest rate.
Secured or unsecured. If you take out a secured loan using your car as collateral, you’ll be able to access a lower rate.
The car you’re buying. Interest rates are lower if you’re buying a new car rather than a used car.
To give you an idea of how much your car loan will cost in total, let’s look at an example of borrowing $13,980 to buy a car. The table below shows how much it costs to pay back the loan at three different interest rates – 9.90%, 12.99% and 14.99% – and over loan terms of five, six and seven years.
Loan amount
APR
Loan term
Monthly payment amount
Total cost of loan
Extra cost compared to cheapest option
$13,980
9.90%
5 years
$296
$17,781
–
$13,980
9.90%
6 years
$258
$18,597
$816
$13,980
9.90%
7 years
$231
$19,434
$1,653
$13,980
12.99%
5 years
$318
$19,081
$1,300
$13,980
12.99%
6 years
$281
$20,200
$2,419
$13,980
12.99%
7 years
$254
$21,357
$3,576
$13,980
14.99%
5 years
$333
$19,951
$2,170
$13,980
14.99%
6 years
$296
$21,278
$3,497
$13,980
14.99%
7 years
$270
$22,654
$4,873
As you can see, the interest rate isn’t the only factor that has a huge impact on the cost of a car loan. In the 9.90% interest rate example, choosing a seven-year term instead of five years may result in a $65 cheaper monthly payment, but it will cost you $1,653 extra over the life of the loan.
How to successfully apply for a car loan in Ontario with bad credit
Here’s what you need to do to apply for a bad credit car loan:
Check your credit score. The first step is to check your credit score to find out exactly how “bad” it is and determine whether you need a bad credit car loan. You can also report or dispute any inaccuracies in your credit report.
Set a budget. You don’t want to bite off more than you can chew, so work out how much you can afford to pay per month to repay the loan.
Improve your application. Other than improving your credit score, is there anything else you can do to increase the chances of approval? For example, can you make a down payment on the loan which means you need to borrow less, or do you have a cosigner who is willing to put their name on the loan?
Compare lenders and loans. Now it’s time to focus on lenders that specialize in bad credit car loans. Look for lenders that are legitimate and don’t make promises that are too good to be true, and compare interest rates, fees and features across a range of loans.
Submit your application. Once you’ve found the right loan, apply by providing your name and contact details as well as proof of ID, income and employment.
Bottom line
Just because you have bad credit doesn’t mean you can’t get a car loan in Ontario. However, you’ll need to contend with high interest rates and disreputable lenders, plus compare a range of options to find the best bad credit car loan for your needs.
Frequently asked questions
Yes. A range of online lenders and car dealerships offer bad credit car loans in Ontario. Rather than focusing on your credit score, these lenders will consider your income and your ability to repay the loan when assessing your application.
Maximum loan amounts vary depending on the lender and your financial situation. However, as a general guide, many lenders offer loans of up to $50,000.
There are a number of alternative and online lenders that offer bad credit car loans in Ontario. You can approach lenders directly to compare loans or consider going through an online broker. Many car dealerships also offer in-house financing for buyers with bad credit, so shop around to see what's available.
Tim Falk is a freelance writer for Finder. Over the course of his 15-year writing career, he has reported on a wide range of personal finance topics. Whether you're investing in stocks and ETFs, comparing savings accounts or choosing a credit card, Tim wants to make it easier for you to understand. When he’s not staring at his computer, you can usually find him exploring the great outdoors.
Find out how to get a car loan without a cosigner, even if you have bad credit.
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