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Compare bad credit car loans
If you need a car loan with bad credit or no credit, here are your options in Canada.
Do you need an auto loan but have bad credit? You might have trouble financing a new car through conventional loans, but you aren’t without options. In fact, some lenders specialize in offering bad credit car loans. Here’s everything you need to know about bad credit car loans, how to apply and what to look out for in the fine print.
Popular bad credit car loans in Canada
|Bad credit car loan lender||Min. credit score||APR||Loan Term||Other requirements|
|300||4.90% - 29.90%||12 - 96 months||Min. income of $2,000 /month, 3+ months employed|
|300||0% - 31.99%||24 - 120 months||Min. income of $1,800 /month, 3+ months employed|
|300||4.90% - 29.95%||3 - 96 months||Min. income of $1,500 /month, 3+ months employed|
|300||9.90% - 31.00%||24 - 84 months||Min. income of $2,200 /month, 3+ months employed|
|300||1.90% - 19.99%||Up to 72 months||Min. income of $1,600 /month, 3+ months employed|
|400||4.75% - 29.99%||12 - 84 months||Min. income of $1,800 /month|
|Bad or no credit||N/A||N/A||Steady monthly income, valid government ID|
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.
What 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, bad credit scores often encompass 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 an auto 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 car loans in Canada?
Bad credit car loan interest rates typically range between 9.90% 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 rating||Credit Score||Interest Rate (hypothetical)||Monthly payment||Total interest paid|
Calculate how much bad credit car loans cost
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.
|Loan terms (in years)|
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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 659)
- 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:
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 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 10% and up to 30%.
- 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.
Bad credit 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.
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.
Compare bad credit car loans
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 car 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.
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.
Frequently asked questions about bad credit car loans
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