Getting a Car in Canada with No Credit
Just because you have no credit history doesn’t mean that you aren’t a responsible car buyer. There are ways to qualify for a loan without a credit history. Take advantage of no established credit as an opportunity to build a good credit report for yourself over time. Making a large purchase like financing a car can be a great first step to jumpstart your credit history report, if you approach the car buying process well-prepared. Click to view car loans that you qualify for without credit.
Prepare Before You Finance
Figure out what you can afford
Before you begin your car financing process, you have to make an honest and realistic review of your monthly budget. Having no credit isn’t an indicator that you can’t pay off debt, it just means that you have no history of making regular or recurring payments to a lender. Here are a few ways to review your budget and make wise preparations that help set the foundation for you to finance your new or used car. See your auto loan options here.
- Look at your monthly income and decide what amount of your budget can be allocated to pay off a car loan. To determine your budget, look at all of your monthly income and deduct your monthly expenses, how much you plan to put into savings and emergency cash to cover unexpected costs.
- Review the amount that you have in your savings account (if you have one). Pulling money from your savings account, if you don’t have it already in your checking account, can help you finance the car that you want in [cf_geo return=”state” default=”Your State”].
- If you don’t have a savings, take a look at ways to begin to save money to pay a down payment on the car that you would like to purchase. Paying a down payment helps better secure an auto loan to finance your car, because it acts as security for lenders and builds equity in the vehicle.
- Other fair considerations to make before you start the process of financing a new car is to factor in your budget for gas, insurance, and maintenance costs for the type of vehicle you want or need to drive. Factoring in these costs can help you choose the right type of vehicle for the lifestyle and one that will serve you for the needs that you have.
Research Your Credit Score
Surprisingly, you may have already established a credit score without building a long credit rap sheet. Car financing, major credit cards and home mortgages aren’t the only way to build your credit history. You could have opened small lines of credit throughout time, without realizing that you were building your credit history report. You can see what’s on your credit history report, plus your credit score quickly and easily through Transunion, Experian or Equifax. It’s important to know what’s on your credit report before you finance a car, firstly because you need to take time to review the items that do appear on your report so that you can dispute any mistakes. Review your prior addresses, and look out for mistakes on the details or even fraudulent lines of credit on your report. These are mistakes may seem minor, but they hamper many people from obtaining the car loan that they want at the terms they want. A better credit score can secure a financing option with a lower interest rate, which means bigger savings on your new car purchase in [cf_geo return=”state” default=”Your State”].
Open a credit account
Opening a small credit account can show lenders that you are building a good, reliable reputation for making payments on credit purchases on time. To build a good credit history, it is good to make payments on time and as they are due. Never skip a payment, or you will begin to negatively impact your credit history. If you want to really establish credit for yourself, it is best to keep your line of credit open and active for at least six months prior to applying for car loans.
Research credit insurance
Credit insurance is a purchase that secures coverage of your loan in the event of loss of income. The credit insurance will cover your payments either in part or full in the event that you are unable to pay off your loan. This is a great way to protect your credit score against unforeseen circumstances that affect your ability to pay off the amount that you owe to your lender. Purchasing credit insurance may make you more attractive to lenders, since they feel there is a security to cover your the portion of the loan that you owe on. Though credit insurance can be pricey, it can help you secure a loan at a better interest rate.
Steps to Finance Your Car
Provide the proper paperwork
Proof of Employment
Showing proof of employment to a lender can help better position you when you apply for a loan. Proof of employment helps demonstrate to lenders that you have a stable income and can repay loans. Including tax documents and pay stubs as a form of proof, can help better prove to lenders that you have a good income that can support a car loan.
Consider a cosigner
A cosigner is a good way to secure a loan if you have no prior credit, or if you have bad credit. A cosigner can be a friend or relative who has good credit, and qualifies for a loan to finance a new or used car. Having a cosigner boosts a lender’s confidence in your ability to make regular payments on your borrowed amount. The record of properly paid transactions will record on both your credit report, and the credit report of your cosigner. The one catch with having a cosigner is that they are responsible for making payments on your loan to the lender, in the event that you default or are unable to pay. Unfortunately, being a cosigner could put a strain on a relationship or make it uncomfortable between you and your cosigner, should you default on your loan payments.
Figure out your interest rate
Calculating the interest rate that you can expect to pay will help you better prepare for what your monthly car loan payments will be. Budgeting for your interest rate is important, because you will likely pay above the actual sticker price of the car, once the interest rate is factored in. An interest rate acts as a security to your lender for financing the car. If at all possible, it is important to choose an interest rate that isn’t extremely high, so that you will only pay a nominal fee on top of the cost of the car. Generally, those with good credit will qualify for lower interest rates than those with poor credit. A buyer with a credit score between 620-680 could qualify for an interest rate of 5%-6% respectively. A buyer with a lower credit score or no credit score will likely pay a much higher percentage. For buyers with no credit, preparing adequately can help you qualify for a better interest rate in [cf_geo return=”state” default=”Your State”].
Figure out the length of your loan
Aside from reviewing what the interest rate will be, it is also important to take under consideration the term of the loan, or how many months it will take for you to repay your debt back to your lender fully. Dividing your loan across a span of time helps break down the cost of your car purchase into more manageable payments. You can finance a loan for as little as just a few months, or divide payments across several years. When looking at the term carefully consider your budget and financial goals. Try to pick a loan with as short of a term as you can afford. Picking a loan that takes less time to repay, may mean that monthly payments are higher, but it also means less interest paid over time. Many first-time or inexperienced buyers make the mistake of applying for the longest loans that they can, in attempts to keep their monthly payments low. Unfortunately this practice can cost you more over time.
Make a down payment
If you have money saved, it is is wise to pay a down payment on your car purchase. Firstly, a down payment builds equity in the car before you even make a payment on your auto loan. Secondly, putting down a down payment lowers the amount that you owe on your car purchase, which means that you will be able to borrow less from your lender. A lower loan amount means that you can either pay off the car in a shorter amount of time and will pay less interest. Keep in mind that you can trade in an old vehicle that will count towards the purchase of your newer car.
Apply for a loan
Once you’ve done your prepwork for securing financing for your new or used vehicle, it is time to apply for financing options. You only need three things to apply for a loan! It is very simple and takes only a few minutes to apply and see all of the financing options available to you in [cf_geo return=”state” default=”Your State”]. In order to qualify for financing options you must:
- Have a valid driver’s license
- Be able to obtain proof of car insurance
- Make at least $1800 per month
That’s it! You can easily and quickly finance your dream car in a few simple steps. Click to apply for loans.
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