Understand the Score
The initial step for prospective car purchasers who suspect they have poor credit is to determine how low their credit scores actually are. The two credit bureaus in Canada, Equifax Canada and TransUnion Canada, offer consumers access to their credit reports and scores. In Canada, a credit score of 650 or higher is regarded as a good credit risk, while scores below this threshold place borrowers in the subprime category. This typically results in higher interest rates.
Save for a Down Payment
In many instances, buyers with poor credit can obtain a lower interest rate by making a down payment on a vehicle. A 10% down payment is frequently sufficient to obtain more favorable terms. Therefore, buyers interested in financing a $10,000 vehicle should expect to put down a minimum of $1,000, particularly if their credit score is below 650.
Consider Using a Cosigner
Those who have a trusted family member or friend with excellent credit who is willing to cosign on a car loan may qualify for a more favorable financing package. However, this individual must pass a credit check and agree to serve as a guarantor in the event that the loan is not repaid.
Consider Your Options
The average interest rate on an auto loan for subprime borrowers is 9 to 10 percent, compared to 3 to 4 percent for those with better credit. When applying for financing, buyers should have this knowledge. It is prudent for consumers to compare multiple financing options before committing to a loan with an annual percentage rate of more than 10 percent.
Perform the Math
In addition to educating themselves on anticipated interest rates prior to shopping, buyers should know their budget and stick to it. This necessitates calculating the target purchase price based on the total amount you anticipate paying, rather than the monthly payment amount you can afford. When shopping for a car, shopping by monthly payment often means agreeing to longer loan terms, which is generally not a good financial strategy.
6. Provide Documentation
Even with a low credit score, the best way to obtain a favorable auto loan is to demonstrate good faith in other ways. When applying for a loan, consumers should bring pay stubs, utility bills, and other proof of their ability to generate income and repay debts.
Poor credit auto loans are common, but that does not mean you should accept the first offer. Preparation and research may qualify consumers for more favorable interest rates and shorter terms, saving them thousands of dollars over the life of the financing contract."""
