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Second chance car loans

Want to purchase a new vehicle? Find out how you might be able to qualify for a car loan with bad credit. 

Second chance car loans are bad credit loans designed to help you purchase a new vehicle. These loans typically come with high interest rates and fees, and can end up costing you a significant amount of money in the long run. This is why it’s important to compare providers and find the best rates for your unique financial situation.

Learn more about how second chance car loans work and find out how you could benefit from one today.

How do second chance car loans work?

Second chance car loans are designed to let borrowers with bad credit or no credit get access to new vehicle financing. Second chance lenders turn a blind eye to the state of your credit report, which is great for borrowers who don’t have the strongest track record. That said, they’ll charge you high fees and rates to compensate for the risk they have to take on.

This risk is associated with the fact that you’re seen as more likely to default on your payments due to your low credit score. As long as you make your payments on time, a second chance car loan can be a good way to improve your credit score and start building up a foundation of assets. These assets can then be used to help secure future loans which will further improve your credit as long as you make good financial decisions.

What’s considered a bad credit score?

A credit score is a summary of your credit history expressed as a number ranging from 300 to 900. The lower your score, the less likely you’ll be to qualify for financing. Good credit scores usually range from 600 to 900. Poor credit scores typically fall below 600, which is the range where you might have more difficulty securing a car loan.

CarsFast Car Loans

  • Min. Loan Amount: $500
  • Max. Loan Amount: $75,000
  • Interest Rate: 4.90% to 29.90%
  • Loan Term: 12-96 months
  • Choose from thousands of vehicles
  • Multiple financing options
  • Pre-approval in 60 seconds
  • Vehicle delivery to your door

CarsFast Car Loans

Browse thousands of vehicles from dealers across Canada and get matched with financing that meets your needs. Apply online and get your new or used car delivered to your door.

  • Min. Loan Amount: $500
  • Max. Loan Amount: $75,000
  • Interest Rate: 4.90% to 29.90%
  • Loan Term: 12-96 months
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How can I get a second chance car loan?

You may be able to get a second chance car loan from your bank or credit union. It’s also possible in some cases to apply through an online lender. Usually, a second chance car loan will be as easy to qualify for as a bad credit loan. It will also come with above prime rates so you should be prepared to spend a little bit more than the average borrower.

A good starting point to find the best second chance auto loan for you is to apply with several different lenders. This will let you compare quotes to find the best rates on offer for your particular situation. It will also make sure that you get a sense of which lenders are willing to work with you, as well as which ones might be trying to take advantage of your bad credit.

Getting the best interest rate

To get the best interest rates, you’ll want to look for a rate that falls below 20% and is spread out over the shortest term you can afford. It also makes sense to look for a loan that doesn’t have penalties for prepayment so you can pay your balance off early if you happen to have spare cash floating around.

You’ll also want to make sure to ask your lender if its rates are precomputed or simple. Precomputed rates are pre calculated for every year of your loan. This means you’ll pay 7 years of interest on a 7-year loan, even if you pay your loan off early. Simple interest rates are a better choice because they only apply to your outstanding balance.

Compare car loan options

Name Product Min. Loan Amount Interest Rate Loan Term Min. Credit Score Requirements
Car Loans Canada
$7,500
3.99% to 29.95%
12-84 months
300
Min. income of $2,000 /month, 3+ months employed
Search thousands of vehicles online, including $0 down options, from dealers across the country and get matched with affordable financing options. Auto loans are also available to those with bad credit, consumer proposals and bankruptcies to help rebuild credit.
CarsFast Car Loans
$500
4.90% to 29.90%
12-96 months
300
Min. income of $1,800 /month, 3+ months employed
Browse thousands of vehicles from dealers across Canada and get matched with financing that meets your needs. Apply online to purchase a new or used vehicle and get the vehicle delivered to your door.
Loans Canada Car Loans
$500
0% to 29.99%
3-96 months
300
Min. income of $1,800 /month, 3+ months employed
Get access to financing from multiple lenders across Canada through a single application with Loans Canada. Bad credit, CERB and EI borrowers are considered.
Coast Capital Car Loan
$10,000
Varies
18-84 months
650
Able to service debt payment of $300/month
Finance or lease both new and used vehicles with competitive rates and flexible terms from one of Canada's largest credit unions.
Canadian Auto News
$7,500
4.49% to 29.90%
12-84 months
300
Min. income of $2,000 /month, 3+ months employed
Answer a few simple questions to get matched with affordable financing options. Auto loans are also available to those with bad credit, consumer proposals and bankruptcies to help rebuild credit.
Canada Auto Finance
$500
4.90%-29.95%
3-96 months
300
Min. income of $1,500 /month, 3+ months employed
Canada Auto Finance is a broker that connects borrowers with partnered local lenders. Financing for a new or used car is available for borrowers with bad credit, no credit, CERB, EI or bankruptcy.
Carloans411 Car Loans
$500
1.90% to 19.99%
Up to 72 months
300
Min. income of $1,600 /month, 3+ months employed
Get connected with suitable lenders through CarLoans411. Finance your next car, van or truck with loans available in amounts from $500 to $50,000. Check eligibility for this loan through LoanConnect.
LoanConnect Car Loans
$500
9.90% to 46.96%
3-120 months
550
No min. income requirement
Get access to 25+ lenders through LoanConnect's brokerage. Receive pre-approval in as fast as 60 seconds and get your funds in as little as 24 hours.
Fairstone Secured Personal Loan
$5,000
19.99% to 23.99%
36-120 months
560
Established credit history and own your home
Fairstone offers secured personal loans up to $35,000.
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Compare up to 4 providers

Benefits of second chance car loans

There are a couple of benefits to second chance car loans that might make them a worthwhile choice as a last resort.

  • Give you access to financing. Second chance car loans can be used as a last resort if you can’t qualify for lower rates but still need a vehicle.
  • Bad credit doesn’t matter. A low credit score won’t affect your ability to qualify for this type of financing.
  • Easy to qualify. You’ll usually be able to qualify fairly easily as long as you’re willing to accept a higher interest rate to help mitigate your lender’s risk.
  • Lets you purchase a vehicle. You’ll be able to afford a vehicle that might be out of your price range otherwise.
  • Helps build credit. This type of loan can help you build up your credit as long as you make your car payments on time every month.

What to watch out for with second chance car loans

There are several significant drawbacks to consider before you sign up for a second chance car loan:

  • Expensive fees. You may need to pay exorbitant fees to get your second chance car loan in place.
  • High interest rates. You’ll usually pay much higher interest rates for a bad credit or second chance car loan than you would with a traditional lender.
  • Large down payment. You may have to pay a larger down payment to make up for your low credit score (or secure the loan with your vehicle as collateral).
  • Inflated purchase price. The price of your vehicle might be higher than expected because the dealer understands that you’re in a desperate situation.
  • Strict contract. Your repayment contract could be much more rigid with a second chance car loan, which could cause trouble if you miss any of your payments.

Second chance car loans scams

Second chance car loans can give predatory lenders a good foothold in the car sales industry. You should avoid working with any lender that:

  • Asks you to purchase mandatory loan insurance. You’ll want to avoid lenders that demand that you purchase loan insurance before releasing your funds.
  • Guarantees approval. You should look for another lender if the one you’re interested in guarantees approval without closely examining your personal and financial situation.
  • Doesn’t clearly outline your rates. You should be suspicious of any lender that attempts to hide your interest rates or other pertinent loan information in the fine print of your contract.
  • Provides financing “subject to approval”. You’ll want to avoid lenders that let you drive off the lot with a promised interest rate, only to call a few weeks later indicating that you’ll need to pay a higher interest rate to keep the car.

Check out other loan scams that you should be aware of

Things to consider before you sign on to a second chance car loan

Second chance car loans are a decent option if you absolutely need a vehicle but can’t qualify for a traditional loan. These loans can be used as a way to rebuild your credit, but they also come with much higher fees and interest rates. For this reason, it’s really important that you only sign up for one if you’re 100% certain that you can afford to make your payments on time.

You should also make sure that you factor the additional expenses of car ownership into your budget before you take out a second chance car loan. These include emergency repairs, routine maintenance, gas, car insurance and roadside assistance. If you don’t think you can handle all of these extra costs in addition to your car payments, you may need to consider other options.

Be aware that the way you handle your second chance car loan can make or break your credit. If you don’t make your payments on time you risk badly damaging your credit score and potentially even losing your vehicle in the end. This is why you should read your loan agreement very carefully, and be sure that you’re equipped to shoulder the risk and responsibility of taking on a new loan before you accept the terms of your contract.

Second chance car loan alternatives

There are a number of alternatives that you can pursue if a second chance car loan doesn’t seem like the right fit for you:

  • Payday loan. If you want to buy a cheap second-hand vehicle, you might be able to take out a payday loan. These are usually for amounts between $500 and $1,500, and have to be paid back by your next paycheque. Just be aware that these loans come with very high interest rates and fees.
  • Short-term personal loans. You might be able to borrow money from your bank or a private lender if you’re a bit short on cash. If your credit score is low you can try applying for a bad credit loan that doesn’t come straight from a dealership.
  • Debt consolidation loans. If you’re looking to fix a more serious issue that you have with unmanageable debt, you may want to consider taking out a debt consolidation loan. This could allow you to pay off all of your debts with a lower rate loan, and then you’d only have to make a single payment each month.

How to apply

Eligibility criteria:

  • Be a Canadian citizen or permanent resident
  • Be at least 18 years old, or the age of majority in your province or territory
  • Have proof of steady income and stable employment

Steps to apply:

  1. Apply with a lender online or in person
  2. Provide personal information such as your name, date of birth, address and email address (and prove your identity with some form of government-issued ID)
  3. Give details about your employment status and income

Bottom line

Taking on a second chance car loan can be a good option if you aren’t able to qualify for a traditional loan. Just be aware that you’ll pay much higher interest rates and fees for this type of loan which means your vehicle will cost you more in the long run. Find out more about what a second chance car loan is and how you might be able to qualify for one.

Frequently asked questions

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