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How to get a car loan without a cosigner
Explore your options when you have bad credit and no cosigner.
Car loans for bad credit with no cosigner are available in Canada, but they tend to come with higher interest rates. Find out where you can apply here and actions you can take to increase your chances of approval.
Can I get a car loan with bad credit and no cosigner?
Yes. If your credit score is below 560, you can still get a car loan without a cosigner. There are online lenders and dealerships that will work with borrowers like you. Lenders prefer borrowers who are low risk, so if you don’t have good credit or a cosigner, other aspects of your application need to be strong. Aspects like a steady income and a down payment signal to lenders that you can repay your loan.
Compare car loans you can get with bad credit and no cosigner
How to get a car loan with poor credit and no cosigner
To get a car loan with poor credit and no cosigner, consider the following actions:
1. Get your credit report
Order your report for free from credit bureaus Equifax or TransUnion. An electronic copy from Equifax takes 5 to 10 days.
Check for any errors and report them to the bureaus so you can improve your credit score. To file a dispute, mail or upload your documents and wait for an investigation. Your dispute can be processed within 5 to 20 days, according to Equifax.
2. Offer a down payment
Offering a down payment is a strong signal to the lender, and the higher the amount the better. Having a down payment means you’ll need to borrow less, which makes you less of a risk to the lender.
If you can, offer at least 20% of the purchase price, but if this isn’t possible, a few hundred dollars is better than zero down payment.
3. Demonstrate steady income
Lenders want to see that a borrower has been employed for at least 3 months. Minimum income varies among lenders. Some have a minimum income of $1,500 per month, some at $1,600 and others at $1,800 or more.
Full-time employment is a stronger signal than part-time, but there are lenders that can consider part-time work as long as you meet their income requirements.
4. Know how much you can afford
Lenders will make their own calculations on how much you can borrow, but before applying anywhere, have a good idea of how much car you can afford. The general rule is to not spend more than 10-15% of your take-home monthly pay on car payments, but be sure to consider your personal variables. Read up on the cost of car ownership, which takes into account fuel, maintenance, licence and registration, and insurance.
5. Find the least expensive used car
The lower the purchase price, the less you’ll need to borrow. Visit sites like Kijiji, CarGurus, AutoTrader and FB Marketplace to compare prices and search for the best deals on used cars.
6. Research interest rates
Unfortunately, borrowers with bad credit will face higher rates on their car loan than those with good credit because lenders see them as higher risk. These car loans are expensive with interest rates in the double digits, so you may wish to compare car loan interest rates in Canada and get car loan pre-approval to get an idea of the best rates you can qualify for.
7. Watch out for long loan terms
The general rule for car loans is to limit your loan term to 4 years or less. Longer loan terms give you lower monthly payments, which can give you breathing room, but you pay more interest over the life of the loan. It can get especially costly for bad credit car loans with no cosigner.
Use the car loan payment calculator below to find out how much you might spend per month based on the loan amount, loan term (in years) and interest rate. Your goal should be to get the shortest loan term possible with monthly payments that you can still manage.
Car loan calculatorCalculate how much you could expect to pay each month
|Loan terms (in years)|
What credit score is needed to buy a car without a cosigner?
A borrower with a good credit score above 660 can take out a car loan without a cosigner from a bank or credit union. If your credit is below 660 or even 560 (which is considered “bad” for credit scores), some alternative lenders online could approve you even without a cosigner. However, expect to encounter steeper interest rates.
No-cosigner car loans with no credit
If you don’t have credit or a cosigner, you may face the same limited options as a buyer with bad credit. This is because a lender can’t judge your ability to pay back the loan, making you more of a risk than someone with even a small credit history.
However, there are still car loan options available to borrowers with no credit. It can help to have a big down payment and regular employment if you want to go through a bank or credit union. Otherwise, you might have better luck with an online lender or dealership.
What are the requirements to get a car loan without a cosigner?
While requirements for a car loan without a cosigner vary by lender, you’ll likely have a better chance of getting approved if you meet the following criteria:
- Steady source of income
- Large down payment saved up
- Fair credit
- Full coverage car insurance
- Canadian citizen or permanent resident
- Be at least the age of majority in your province/territory (either 18 or 19 years old)
4 ways to increase your chances of approval
When you’re looking for a good deal on a car loan without a cosigner, even if you’re starting out with bad credit, keep these tips in mind to help your search.
- Build your credit score. Taking the time to build your credit score before applying for a car loan will help you score a lower rate or more competitive terms. You can build your score by spending carefully with credit cards or making timely repayments on other loans.
- Save up for a higher down payment. The bigger your down payment, the less you’ll need to borrow. This means you won’t need to finance as much of your vehicle, which makes you less of a risk to a potential lender.
- Pay down your current debts. If your debt-to-income (DTI) ratio is too high, a lender will likely consider your other financial obligations as a risk. Because of this, you may want to focus on paying off your debts and improving your credit utilization ratio before applying.
- Compare multiple lenders. Understanding your options is critical when it comes to getting a competitive rate, even without a cosigner. Most credit bureaus count multiple car loan applications as one hard pull on your report — provided you apply within a certain period of time. Use this to your advantage and compare as many lenders as possible before making a final decision.
No matter your credit score, you could find a car loan provider without needing someone to vouch for you. Banks and credit unions often offer low rates to borrowers with good to excellent credit. However, if you’re hoping to get a car loan with bad credit and no cosigner, you may want to look into online lenders and dealerships first. If you want to learn more about the car-buying process, you can check out our guide to car loans here.
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