It has recently become more difficult for individuals to build up their credit or even maintain a good one over time. But does having a bad credit mean you don’t have the right or ability to finance or lease a new vehicle? The answer is no. While having a bad credit might make the process of finding the right place to finance from a little more difficult there are many dealerships in every Canadian province who now specialize on what they call sub-prime auto loans (loans for people with poor credit).
What is a Bad Credit Auto Loan?
A bad credit auto loan, also known as sub-prime auto loan, is a vehicle loan with a higher interest rate compared to loans for individuals with stellar credit history.
What you should know:
- Terms for these loans vary from lender to lender
- The term ranges anywhere from 12 months to 72 months
- The monthly payment is based on the term and what the borrower can afford
- The consumer must be employed in order to qualify. In some cases individuals whose income comes from pension can qualify as well
- You can finance either a new or used vehicle
Tip #1: Be Prepared
The most important thing for you to do before you go into any loan, especially with bad credit, is to do your research. A good place to start would be finding out more about subprime loans, interest rates and how car loans in general affect your credit.
Things you must know while doing your preliminary research and have prepared:
- Your credit score
- Your monthly budget for car payments
- What type of vehicle will suit your needs
- You should also try to avoid making more than 5 inquiries into your credit within 2 weeks if you are concerned about the effects it will have on your current credit rating.
- Lenders have some basic criteria you do need to meet in order to be approved like being employed, if you do not meet some of the requirements you will want to look into finding a co-signer
- Proof of income. The most important thing for lenders is that you have the ability to prove your income, if you can only prove a portion and it is below the minimum requirement you might be asked to find a co-signer.
To speak with someone about Bad Credit Auto loans please apply here.
Tip #2: Be Honest
It is very important that you are completely honest about your current financial situation and any past issues you have had with your credit. There is nothing that will make you lose a financing offer faster than lying about your income, housing situation and current employment. Lenders know that you are shopping around so it is in their best interest to give you the best possible financing deal. Being honest with them will put them in a better position to assist you.
Tip #3: Bring a friend
Bring a friend with you (or family member) who is aware of your current financial situation and has your best interests in mind. A good friend can help you make a decision or even help you say that you need to think about the offer before signing. They can also help you say no to deals that are contingent on you purchasing add-ons or unnecessary extras.
Tip #4: Find a Shorter Term Financing Deal
The good news is that if you commit to fixing whatever issue messed with your credit and making your payments on time for a full year your credit will begin to repair itself. What you want to look for is a short term financing deal. The way short term financing deals work is you finance at the high interest rate that is presented to you at the time, you make your payments on time for a year and then refinance after a year of building up your credit. Your interest rate might be reduce to up to 50% less than what you originally had financed for.
Tip #5: Be Realistic
You must be realistic about what your budget is and what you can and cannot afford. Having a budget informs the lender of what your comfortable zone is, so that they can help you find a vehicle that is within your budget. It is recommended that you aim lower on your budget than higher. Life happens, and as we know life can sometimes take a hit on us financially. It is important that regardless of what life throws at you, you are in a position to make your payments on time. Remember, the whole point of financing on a short term is to rebuild your credit, so you can resign at a lower interest rate. You don’t want to ruin all your hard work by setting yourself up for failure financially.
Also keep in mind that paying off the loan, is not the only time you need to put money into your vehicle. Think about what you will have to spend a month on gas and on insurance. Make a comprehensive budget that includes your current income and ALL expenses to determine what your comfortable zone is. It is also recommended to select a vehicle that is efficient on gas and is not too expensive to get insurance on.
If you are interested in learning more about bad credit loans and what sort of financing you are eligible for you can apply here. It doesn’t take more than a couple minutes and we will usually give you a call back within a couple hours.
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