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Best bad credit auto loans

If you need a car loan with bad credit or no credit, here are some of your best options in Canada.

Do you need an auto loan but don’t have the best credit score? You might have trouble financing a new car through traditional bank loans, but you still have options. In fact, some lenders specialize in offering poor credit car loans. Here’s what you need to know about them, including some of the best bad credit auto loans in Canada, how to get approved and what to watch out for before you sign on that dotted line.

No single car loan is best for everyone, so compare your options before applying.

Best bad credit car loans in Canada

Bad credit car loan providerAPRLoan termEligibility requirements
CarsFast3.90% - 29.90%12 - 96 monthsMin. income of $2,000 /month, 3+ months employedGo to site

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Loans Canada0% - 46.96%3 - 60 monthsMin. income of $1,800 /month, 3+ months employedGo to site

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Car Deal Canada6.99% - 31.99%.12 - 84 monthsMin. income of $2,200 /month, 3+ months full time employed

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Dealerhop6.99% - 29.99%3 - 120 monthsMin. income of $2,000 /month, 3+ months employedGo to site

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CarDoorFrom 7.99%12 - 96 months3+ months employed, Max.1 bankruptcy, Ontario only
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ClutchFrom 8.49%12 - 96 months3+ months employed, Max.1 bankruptcy, Ontario & Nova Scotia onlyGo to site

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TD6.99% - 9.99%Up to 96 monthsSteady valid income

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iA Auto Finance bad credit car loansAs low as 10.99%VariesSteady valid income

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How we select the best bad credit auto loans

At Finder, we spend hundreds of hours comparing and analyzing providers and products. Based on this research, we select the best bad credit auto loans based on specific criteria and reasons. When choosing the best car loans for bad credit, we considered each lender’s rates, fees, terms, borrowing amounts, approval speed, funding speed, borrower perks and accolades. Use our list of the top best bad credit car loan suggestions as a tool — to help you narrow down the options and find the best auto financing to fit your needs. Remember, no single car loan will be the best choice for everyone, so compare your options before applying.

In 2023, we completed the Finder: Car Loans Consumer Satisfaction Awards — an annual ranking of car loan providers in Canada, based on customer satisfaction feedback. Read more about these customer satisfaction wards and the methodology used to find the best car loan providers.

Learn more about the best bad credit car loans

Here we break down details of the best car loans for bad credit borrowers in Canada so you can easily compare your options.

1. CarsFast

CarsFast Car Loans
Customer Survey: ★★★★★ 4.5 / 5
Go to site
$500 – $75,000
Loan amount
3.9% – 29.9%
APR
12 - 96 months
Term
CarsFast helps you find the right car and financing by providing access to hundreds of dealerships across Canada and to a network of lenders, including big banks, through one application. If you've been denied a car loan by traditional lenders, you can still apply. Fill out a two-minute application and get a response right after. CarsFast was the car loan search platform finalist in the Finder: Car Loans Customer Satisfaction Awards 2023 with an overall customer satisfaction score of 82.50%. Full Review

Best benefits

  • Access a large network of dealerships. CarsFast is partnered with 350 dealerships to help people with bad credit find a car loan.
  • Fast quotes. Get your offer(s) within minutes of applying.
  • Get approved. CarsFast's network of lenders include those that work with poor credit.
  • Accepts bad credit
  • Has worked with over 350,000 customers
  • Lending network consists of established lenders like the big banks
  • No sign up or log in required
  • High rates for bad credit
  • Offers are limited to dealerships and lenders within CarsFast's network
Loan amount $500 – $75,000
APR 3.9% – 29.9%
Term 12 - 96 months
Interest Rate Type Fixed
Min. Credit Score 300
Fees Varies by lender, loan type and province
Turnaround Time Get pre-approved in less than 60 seconds.
Serviced Provinces All provinces

2. Loans Canada

Loans Canada Car Loans
Customer Survey: ★★★★★ 4.5 / 5
Go to site
$500 – $50,000
Loan amount
0% – 46.96%
APR
3 - 60 months
Term
As a free loan search platform, Loans Canada connects you with lenders willing to offer car loans based on your financial situation. Borrowers with any credit score can apply since Loans Canada has a minimum credit score of 300. Loans Canada won for best car loan search platform in the Finder: Car Loans Customer Satisfaction Awards 2023 with an overall customer satisfaction score of 86.00%. Full Review

Best benefits

  • Save time. Your application will be cast wide and you'll get your results right after you apply.
  • Easily compare offers. Compare offers from multiple lenders in one place.
  • Work with an established company. Loans Canada has been in business since 2012 and is accredited by the Better Business Bureau (BBB) with an A+ rating.
  • Accepts bad credit
  • Over 60 lenders in its network
  • Fast pre-approvals
  • High rates for bad credit
  • Offers limited to what's available in Loans Canada's network
Loan amount $500 – $50,000
APR 0% – 46.96%
Term 3 - 60 months
Interest Rate Type Fixed
Min. Credit Score 300
Fees Varies by lender
Turnaround Time Varies
Serviced Provinces All provinces and territories

3. Car Deal Canada

Car Deal Canada Car Loans
$7,500 – $50,000
Loan amount
6.99% – 31.99%
APR
12 - 84 months
Term
Car Deal Canada helps you find a used car and car loan that meet your needs. It provides access to over 1,000 used vehicles through its network of dealers, and it's partnered with the big banks and alternative lenders to help Canadians of all credit scores, including those with poor credit, find a suitable car loan. Full Review

Best benefits

  • Enjoy a hassle-free process. Skip the in-person visits to the dealerships. Find the car you want online and get it delivered to your doorstep.
  • Get access to lenders. Car Deal Canada's network includes the Big Six banks as well as other auto financing companies.
  • Browse a solid inventory. Access over 5,000 used vehicles through Car Deal Canada's network of dealers.
  • Accepts bad credit
  • Fast financing and deliver
  • High rates for bad credit
  • Used cars only
Loan amount $7,500 – $50,000
APR 6.99% – 31.99%
Term 12 - 84 months
Interest Rate Type Fixed
Turnaround Time Get pre-approved in less than 60 seconds
Serviced Provinces All provinces

4. Dealerhop

$7,000 – $50,000
Loan amount
6.99% – 29.99%
APR
3 - 120 months
Term
Dealerhop is an online marketplace where you can buy a vehicle, finance or sell your car. For car buyers, Dealerhop offers online car financing pre-approval and can then match you with a third-party lending partner or dealership. Full Review

Best benefits

  • Save time. Choose and finance your next vehicle online and avoid the hassle of visiting dealerships in person.
  • Get approved. Dealerhop has partnerships in place to match you with financing even if you have bad credit.
  • Enjoy a convenient process. Once you choose the car you want, you can have it delivered to your home or to a dealership near you.
  • Accepts bad credit
  • Fast access to funds
  • No down payment required
  • High rates for bad credit
Loan amount $7,000 – $50,000
APR 6.99% – 29.99%
Term 3 - 120 months
Interest Rate Type Fixed
Min. Credit Score 300
Fees $0
Turnaround Time 24 Hours
Serviced Provinces British Columbia, Saskatchewan, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland

5. CarDoor

CarDoor Car Loan
Customer Survey: ★★★★★ 4.5 / 5
Go to site
Starting at $5,000
Loan amount
Starting at 7.99%
APR
12 - 96 months
Term
CarDoor is an online platform enabling Ontarians to buy a vehicle entirely online – from choosing a vehicle to getting it delivered to your home. You can look at over 20 pictures of the vehicle's interior and exterior to help you easily compare your options. Plus, with a minimum credit score of 500, customers with a poor or fair credit score are eligible for financing. Once you fill out an application, a CarDoor finance manager will be in touch to walk you through the next steps. CarDoor secured a spot in both the Top 15 Most Recommended and Top 15 Best-Rated car loan provider lists in the Finder: Car Loans Customer Satisfaction Awards 2023. Full Review

Best benefits

  • Work with a reputable loan provider. CarDoor will match you with a reputable lender to finance your purchase.
  • Browse through hundreds of vehicles. Choose from CarDoor's inventory, which includes hundreds of used vehicles.
  • Vehicle delivered to your door. Get your vehicle delivered right to your door.
  • Accepts bad credit
  • 100% online
  • Car delivered to your door
  • Only available in Ontario
  • You're limited to CarDoor's inventory
Loan amount Starting at $5,000
APR Starting at 7.99%
Term 12 - 96 months
Interest Rate Type Fixed
Min. Credit Score 500
Fees $130 for registering your licence plate
Turnaround Time Less than 24 hours
Serviced Provinces Ontario

5. Clutch

Clutch Car Loans
Customer Survey: ★★★★★ 4.5 / 5
Go to site
Starting at $7,500
Loan amount
Starting at 8.49%
APR
12 - 96 months
Term
Clutch is a car-buying platform designed to help you buy a car entirely online. It is available in Ontario and Nova Scotia. Browse through Clutch's inventory of vehicles, and once you choose your vehicle, arrange for financing even with bad credit. Get the car delivered to your home and enjoy a trial period. Clutch received the Finalist award for the Best Comparison Platform category in the Finder: Car Loans Customer Satisfaction Awards 2023 with an overall customer satisfaction score of 86.25%. Full Review

Best benefits

  • Browse thousands of vehicles online. Clutch has over 700 used vehicles to choose from.
  • Open ended loan terms. If you choose to finance your vehicle, the loan is open-ended and can be paid off at any time without prepayment penalties.
  • Money-back guarantee. You have 10 days/750 km to decide if the vehicle is right for you. If it's not, you can request a full refund or exchange for another vehicle.
  • Accepts bad credit
  • 100% online
  • Car delivered to your door
  • Higher rates for bad credit
  • Vehicles limited to Clutch's inventory
Loan amount Starting at $7,500
APR Starting at 8.49%
Term 12 - 96 months
Interest Rate Type Fixed
Min. Credit Score 580
Fees Service fees will apply depending on where you live: $899 in Nova Scotia
Turnaround Time Less than 24 hours
Serviced Provinces Ontario and Nova Scotia

6. TD

TD Car Loan
Customer Survey: ★★★★★ 4.5 / 5
$5,000 – $50,000
Loan amount
6.99% – 9.99%
APR
96 months
Term
TD is one of Canada's largest banks and has a car loan division specifically for people with lower credit scores. TD was the finalist for the traditional car loan lender category in the Finder: Car Loans Customer Satisfaction Awards 2023 with an overall customer satisfaction score of 87.94%. If you're already a TD customer, you can keep all of your finances under one roof if you get a bad credit car loan from them. Full Review

Best benefits

  • Work with one of the Big Six. You'll be getting a bad credit car loan from a trusted, experienced lender.
  • Get a loan from an award winner. TD ranked first in the J.D. Power 2023 Canada Dealer Financing Satisfaction Study for the non-captive, non-prime segment.
  • Compare cars on its easy app. TD Wheels allows you to search for cars based on your price range.
  • Accepts bad credit
  • Established direct lender
  • Won't be able to compare offers
  • High rates for bad credit
Loan amount $5,000 – $50,000
APR 6.99% – 9.99%
Term 96 months
Interest Rate Type Fixed
Serviced Provinces All provinces

7. iA Auto Finance

iA Auto Finance
Customer Survey: ★★★★★ 4 / 5
N/A
Loan amount
Starting at 10.99%
APR
Varies
Term
iA provides bad credit auto financing through partner dealers across the country. One of iA's standout features is its Rate Reducing Loan, which gives you the option to reduce your interest rate each year, pay off your loan faster and rebuild your credit score. iA Auto Finance was the finalist in the best car loan alternative lender category in the Finder: Car Loans Customer Satisfaction Awards 2023 with an overall customer satisfaction score of 84.00%. Full Review

Best benefits

  • Work with an established direct lender. iA Auto Finance is owned by iA Financial Group, which was founded in 1892.
  • Reduce your car loan rate every year. It offers the Rate Reducing Loan, which allows you to lower your rate by 10% every year when you make on-time payments.
  • Get a loan from an award finalist. iA Auto Finance ranked second in the J.D. Power 2023 Canada Dealer Financing Satisfaction Study for the non-captive, non-prime segment.
  • Accepts bad credit
  • Established direct lender
  • Won't be able to compare offers
  • High rates for bad credit
Loan amount N/A
APR Starting at 10.99%
Term Varies
Interest Rate Type Fixed
Serviced Provinces All across Canada

Can I get a bad credit car loan in Canada?

Yes, you can. Don’t be discouraged if you need to finance a car and have bad credit. While having a poor credit score will limit your options, there are plenty of lenders who offer bad credit car loans as long as you have a steady source of income. You’ll likely encounter higher interest rates and fees for any loans you are approved for though.

Car dealerships and online lenders offer bad credit auto loans to consumers who are dealing with bankruptcy, bad credit or have no credit at all. With bankruptcy, the process of securing a car loan may take a bit more time because your lender may need additional information from your trustee.

credit score scaleWhat is a bad credit score for a car loan?

Car loan providers generally see any credit score below 660 as a bad credit score. In Canada, credit scores range form 300 to 900. By many auto financing standards, a bad credit car loan would often encompass scores within both “poor” credit (300-559) and “fair” credit (560-659) ranges.

Car loan lenders use your credit score to assess your eligibility because it’s a good indication of how well you handle debt. Your credit score indicates things like how much debt you’re carrying, if you consistently make repayments and if you tend to max out your debts.

A higher credit score means that you’ve consistently managed those factors well, which is a sign to lenders that you’re a responsible borrower. A lower credit score indicates to lenders that there’s a greater chance you may default on your auto loan.

Where can I get bad credit car loans in Canada?

While your first stop for a car loan may be your local bank or credit union, those institutions tend to only offer car loans to good credit borrowers. Still, if you have a longstanding relationship with your bank, it may be worth discussing your options with a representative there first.

However, in general you’ll have a much better chance of getting approved for bad credit car loans if you apply with auto lenders who specialize in that area, like at a dealership or with a private lender.

Car dealerships for bad credit

Dealerships are often willing to provide bad credit car loans to their customers. You can improve your chances of getting approved if you apply with a cosigner that has a better credit score than you do. Like with any bad credit loan, you’ll likely pay higher rates.

It’s a good idea to get auto financing quotes from online lenders to give you some bargaining power at the dealership for a bad credit car loan and help you feel confident that you’re getting a good deal.

Private car loan lenders for bad credit

Some private lenders, typically online lenders, specialize in offering car loans to bad credit borrowers. Because of that, your chances of approval are much better with these types of lenders. Of course, you’ll still have to pay relatively high interest rates.

The trouble with online lenders can be finding a legit and trustworthy one. Watch out for any online lenders offering guaranteed auto loans for bad credit, as they could be scams. To help you navigate that space safely, we’ve designed a full guide to legit car loan lenders and common scams here.

Compare legit bad credit car loans

Can I get no credit car loans in Canada?

Yes, even if you have no credit history, you may still be able to get car financing from certain lenders in Canada. While you likely won’t be able to qualify with banks, you do have options from alternative, online lenders like the ones in the table above who specialize in offering bad credit car loans. Keep in mind that you’ll end up paying much higher interest rates – easily over 15% – since lenders consider you a riskier borrower for having no credit history.

Can I get a guaranteed auto loan?

While there are some lenders who offer guaranteed auto loans, you should approach any such offers with skepticism. Most legitimate lenders will not guarantee a bad credit car loan before thoroughly assessing your finances. But if you’re worried that factors like your credit score or income might prevent you from qualifying, don’t worry, you have options.

There are many alternative, online lenders – like those in the table above – that have very lenient eligibility requirements and will accept bad credit or low income borrowers. Of course, like any bad credit loan, it will come with high interest rates.

What is the interest rate on bad credit auto loans in Canada?

Bad credit car loan interest rates typically range between 14% and 29.99%. The interest rate you qualify for will be based on factors like your income, down payment and credit score. Other factors that may impact your car finance interest rate is how much you need to borrow, the type of car you’re buying and how long you need to repay the loan.

How does your credit score impact your car loan interest rate?

Your credit score helps lenders determine how much risk they’re taking on by offering you an auto loan for bad credit. A lower credit score means more risk for the lender, which translates to a higher interest rate for you.

The following example shows the amount of interest you could end up paying based on your credit score for a brand new $36,000 car assuming a loan term of 7 years, 13% provincial sales tax and a $3,600 down payment.

Credit ratingCredit ScoreInterest Rate (hypothetical)Monthly paymentTotal interest paid
Poor300-55915%$706.49$22,733.39
Fair560-65910%$607.80$14,443.41
Good660-7246.50%$543.67$9,056.08
Very good725-7596%$534.85$8,315.27
Excellent760-9005.5%$526.12$7,581.74

How much do bad credit car loans cost?

How much your bad credit car loan costs will primarily depend on the interest rate you’re charged and how long it takes to pay off the loan. For context, interest rates on bad credit auto financing tend to range between 14% and 29.99% while loan terms fall between 2 and 7 years.

Remember that the longer you take to pay off the loan, the more it will cost in interest. When signing up for a bad credit car loan, it’s a good idea to opt for the shortest loan term you can comfortably afford in order to keep the overall cost down.

You can use the car loan monthly payment calculator below to see how much you may end up paying when you finance a car with bad credit.

Calculate how much bad credit car loans cost
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Loan amount
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Loan terms (in years)
Interest rate
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Fill out the form and click on “Calculate” to see your estimated monthly payment.

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You can expect to pay back $ per month
Based on your loan terms
Principal $
Interest $
Total Cost $

Can you afford extra payments?

The flexibility of making extra payments can help you get out of debt much quicker. Check with your lender to see if making extra payments is allowed.

If you have the option to choose weekly or biweekly over monthly payments, do so because this will add two extra payments towards your bad credit car loan each year. (Each year, there are two months that have five weeks in them, not just four. This won’t affect plans based on a month-to-month schedule, but it will affect plans based on a week-to-week schedule.)

Do I qualify for a bad credit car loan?

It depends on your credit rating, the type and cost of the car you’re looking to buy and your financial situation. Typically, bad credit car loans are earmarked for people who have a steady source of income and meet at least one of the following criteria:

  • Bad credit (anything under 660)
  • Little to no credit history
  • Filed for bankruptcy or insolvency
  • Immigrant or newcomer to Canada
  • Student with low income or little credit history
  • Series of missed or late payments
  • Can’t secure a conventional car loan

Don’t neglect other bad credit auto financing alternatives, such as using a credit card to pay for a low-cost car or getting a personal loan instead of a car loan.

Types of cars can you finance with a bad credit car loan

You can pick from new and used cars with a bad credit auto loan. Many lenders work in partnership with car dealerships across Canada, giving you access to a large inventory of new and pre-owned vehicles, from cars and vans to SUVs and trucks.

That said, your lender will approve your loan based on how much you can reasonably afford. While you may want a brand new BMW SUV, your income and credit score may limit you to a cheaper or pre-owned model.

Some popular car brands with vehicles models that may fall within your bad credit car loan budget include:

  • Toyota
  • Honda
  • Ford
  • Volkswagen
  • Mazda
  • Hyundai
  • Subaru
  • Kia
  • Nissan

Check out our guide to the best cars under $25,000 for more ideas.

Can I trade in my vehicle when financing a car with bad credit?

Some dealerships allow you to trade in your current car for a new one even if you have a bad credit score. Your old vehicle’s value is appraised and subtracted from the market price of your new car. Trading in your old car will lower the amount you need to borrow, which could improve your chances of approval for financing with bad credit.

How to apply for bad credit car loans

The process for getting a car loan with bad credit isn’t too different from getting one with good credit. Here’s a step-by-step look at what to expect:

1. Compare bad credit car loans in Canada

Compare the loan terms, loan amounts, interest rates, fees and eligibility requirements of lenders offering car financing with bad credit. Also read reviews from real customers. You can easily compare your options in the table above.

2. Apply online

Once you’ve done your research and zeroed in on the platform offering the auto loan for bad credit you think fits your needs and budget, fill out the application form online. Review your application thoroughly because errors can result in a rejection.

Most lenders ask to see at least three documents when you apply for a bad credit car loan. Online lenders typically allow you to upload documents and forms as PDF files.

  • Your driver’s licence. Your lender might ask to see your licence or require your licence number. Either way, have it on hand. Your license can also serve as your proof of address.
  • Your car insurance card. Since car insurance is mandatory in Canada, lenders may require you to show proof of insurance before applying for a loan.
  • Employment verification. You might be asked to submit tax returns, bank statements or recent pay stubs to prove you make enough to afford your car loan.

3. Get car loan pre-approval

In most instances, online platforms will show you which lenders have pre-approved you, for how much and under what terms. You can then compare your car finance options for bad credit and choose the loan terms that work best for you.

4. Select your car

Your bad credit car loan lender will connect you with a local dealership to make sure the vehicle you want is available. Work with your lender and the dealership to work out the details on pricing, your down payment, monthly payments and how you’ll make these payments (usually through an automatic withdrawal from your chequing account). The dealership will be in contact with you to sort out a pick-up date for your new car.

5. Review and submit your contract

Make sure you understand what you’re signing up for, including how much you’ll be paying in interest over the lifetime of your loan, any monthly fees or penalties you’re agreeing to and if you’re allowed to make extra payments or pay off your bad credit car financing altogether. Sign and submit when you’re ready.

Features of bad credit car financing

Before you apply for any loan, especially a bad credit auto loan, it’s important to find out as much as you can about the offer you’re getting. Consider these factors before applying.

  • APR (annual percentage rate).
    To get an idea of how much your loan is going to cost, look at the APR. The APR represents the annual cost of having the loan, including both interest and fees and is the easiest way to make a quick comparison of car loans with the same terms. Bad credit auto loans tend to come with APRs as low as 14% and up to 29.99%.
  • Down payment.
    A down payment can make a big dent in how much you need to borrow, drive your interest rate down and can increase you chances of approval. A good rule of thumb is to set aside 10% to 20% of a car’s purchase price as a down payment. Consider your savings and monthly income and see how much you can feasibly set aside for a down payment.
  • Loan term.
    Car loan terms for bad credit financing usually run between 2 and 7 years. A shorter loan term means you’ll pay less towards interest overall and get out of debt quicker – but your monthly payments will be bigger. A longer loan term will lower your monthly payment, but since there’s more time for interest to accumulate, you’ll pay more interest overall.
  • Fees.
    Bad credit car loans often come with more fees than other types of auto financing. Some lenders charge a monthly account fee or administration fee, which can range from $10 to $20 per month. Many will also charge an origination fee, usually either 1% to 5% of the loan amount or a flat rate, when issuing your funds. Some loans also include early repayment fees if you pay the loan in full before the term date.

How to increase your chances of approval for bad credit car loans

If you’re worried your credit score might hinder your prospects, here are a few things you can do to help improve your chances of approval for car financing with bad credit.

Improve your credit score

If you can wait at least 6 months to buy a car, try to get your credit into better shape. Pay down your credit card debt as much as you can and make sure you aren’t late or missing any payments on any of your debts. This will help improve your credit score, and show lenders you’re can handle your current debt better. Learn more about how to improve your credit.

Check your credit report

A mistake on your credit report can cost you points on your credit score. So it’s worth checking your credit report before applying for a bad credit car loan to ensure all the details are in order. You can get a copy of your credit report for free and fix mistakes by contacting the creditor. Learn how to get your credit score here.

Set your budget

Come up with a limit to how much you’re willing to spend on a car, how much you can afford for the down payment and how much you can pay each month. Take into account other car costs like registration, gas, insurance and maintenance when deciding your budget. Bad credit financing lenders may offer you more but if you’ve already done your homework, you’ll know precisely how much you can realistically afford.

Shop around

Apply for pre-approval with a few bad credit auto loan lenders to see what rates and terms you’re eligible to qualify with. If they run a hard credit check, make sure to keep your applications within a few weeks to avoid hurting your credit score too much. Compare bad credit car loan features like APRs and fees. Many provinces have limits on car loan APRs, and some bad credit lenders try to sneak around these by tacking over-priced extras into the contract.

Apply with a cosigner

Bringing on someone with a higher credit score or a higher income can increase your chances of approval for car financing if you have bad credit. And if you plan on sharing the car, you’ll share the responsibility for paying it off.

Benefits of bad credit car loans

Bad credit car loans in Canada are a godsend if you have less-than-perfect credit and need to secure financing to buy a car. They come with a series of other perks too:

  • Easy, secure online applications with quick pre-approvals. After filling out an application form online, most online lenders that specialize in bad credit car loans work quickly to get you pre-approved and working with a lender of your choice to secure your loan.
  • Loans provided with no bad credit or no credit. Lenders providing bad credit car loans offer financing for any type of credit situation, including no credit car loans or for those in bankruptcy.
  • No down payment. It’s possible to get a bad credit car loan without paying any money out of pocket to secure your vehicle. The focus tends to be on proving that you have a steady source of income to make your repayments to your lender.
  • Lengthy terms. You can lock in a bad credit auto loan term lasting up to seven years to help bring your monthly payments down.
  • Large sums of money. Bad credit car loans provide you with large amounts of money to buy the car you want. Make sure you’re not overcommitting and only borrowing what you need and can afford to repay.
  • In-house dealership loans. Rather than working with a conventional lender, some bad credit loans are provided by auto dealerships that offer in-house financing for your car purchase.
  • Large inventory. You can choose from new and pre-owned cars, trucks, SUVs and minivans on offer from dealerships partnered with bad credit car lenders.
  • Improve your credit score. As long as you keep up with your monthly repayments, your bad credit car loan can actually help to rebuild your credit, setting you up for better terms and interest rates for future loans.

What to watch out for with bad credit auto loans

On the flip side, a bad credit auto loan comes with its fair share of red flags to keep an eye on. Make sure you know exactly what you’re getting into before you sign up to finance a car with bad credit. If you don’t do your research, you could find yourself in a financial nightmare or, worse, a scam. Here are some red flags to be aware of:

  • Going over budget. Work out how much money you’ll be paying back over the course of the loan to get an idea of how much you’ll be spending overall on your vehicle – is the amount plus interest worth it? More importantly, can you afford it? Learn more about car loan affordability.
  • Steep interest rates for bad credit. You may be able to secure auto financing despite having bad credit or no credit at all, but you could end up paying interest rates as high as 29.95% or more for your loan.
  • Hidden fees and penalties. After you’ve done your research on your lender, triple-check your loan’s terms and conditions to make sure you’re on board with all the details in the fine print. You may be committing to paying for origination fees, late payments penalties, extra payment fees or other changes to your loan.
  • Extremely long loan terms. Some lenders offer bad credit car loan terms of over 7 years that can accrue major interest over time. Sure, the monthly payments will be lower, but if it’s not absolutely necessary, you should avoid longer terms to save money.
  • Being unprepared. Check your credit score before you do any car shopping to avoid applying for loans you’re unlikely to get approval for. Each full application requires a hard pull on your credit, which can hurt your credit score. Once you know what interest rates you can qualify for with your credit score, you can better compare your options.
  • Making an impulsive purchase. Of course your dream car is out there. But if you have poor credit, it may have to wait so you can buy a car you can afford with lower rates.
  • Falling for a scam. There are some common scams and tactics you should be aware of when you’re shopping for a bad credit car loan. Check our full guide to learn about scams like yo-yo financing, guaranteed approval and other common schemes. Don’t let a predatory lender push you into making the wrong financial move.

Alternatives to car financing with bad credit

If a bad credit car loan isn’t the right choice for you, you have a few more options to consider:

  • Work towards improving your credit rating. By controlling your debts, managing your finances and knowing what’s on your credit file so that you can remove any errors or disputes from your file, you will improve your credit rating. You can apply for a conventional car loan when your credit score is in better shape.
  • Use a credit card to buy your car. If you already have a credit card with a high balance to work with, you may be able to pay for your car with plastic. The smart way to pay for a car purchase with a credit card is to buy a cheap car and take advantage of a low interest rate or 0% offer. This way, you pay off the balance gradually without the hefty charges associated with a regular credit card or a personal loan.
  • Apply for a guarantor/cosigned loan. If you can’t qualify for a traditional car loan on your own, you can ask a family member or close friend to cosign on your loan and act as a guarantor. The catch? If you default on payments, your guarantor will have to pick up your loan, so make sure they’re aware of what they’re committing to. Both of your credit scores will take a hit if you default on your loan.
  • A personal loan instead of a bad credit auto loan. You can also work with your bank or an online lender to secure a personal loan you can use to purchase a new car. Your personal loan can be secured, using one of your assets as security, or it can be unsecured with a higher interest rate.
  • Credit counselling. Sign up for a credit counselling session to have an expert guide you through your options. Visit the government of Canada’s website where you can find a credit counsellor who can help you get your finances back on track.

Bottom line

Bad credit car loans are available in Canada to those with less-than-perfect credit or even no credit history. Compare your options to finance a car with bad credit and get pre-approval to narrow down the best deal. Before you sign on the dotted line, make sure you can afford the repayments and understand the total cost of your car loan.

Back and side view of a car

Frequently asked questions about bad credit auto loans

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