Are you looking for a car loan but have no credit history or bad credit? You increase your chances of getting approved and rebuild your credit at the same time with bad credit auto loans. Bad credit lenders are more likely to approve those with bad credit at a higher interest rate, so it is helpful to contact them when you are looking to buy a car with no credit history or bad credit.
What Is Considered a Bad Credit Score?
In Canada, TransUnion and Equifax are the two national credit reporting bureaus that provide a credit score for lenders to determine your loan qualifications. Your credit score can vary from 300 to 900, with 300 being the lowest score.
Generally, if your credit score is above 650, you can qualify for most traditional auto loans. Any number lower than 650 may only qualify you for bad credit auto loans. A credit score between 300 and 650 is considered less desirable for lenders and may be classified as a bad credit score.
What Kind of Credit Do I Need for an Auto Loan?
A credit score over 650 will qualify you for most traditional car loans, and as your credit score gets closer to 900, the annual interest rates will become lower when you apply for a loan. If you have a credit score above 650, most car dealerships will be able to work with you to get a loan from their lenders, or you can choose to take a loan from your bank. If you have no credit history or limited credit history, you may not qualify for these loans.
Can I Use My Income to Qualify for a Loan?
Even if your credit is not great, you may be able to qualify for a loan if you make enough income. Lenders may consider you if you have no credit history or bad credit when you make more than $1,800 per month before taxes. If you make over $10.50 per hour working 40 hours per week and have a steady income, you can likely be approved for an auto loan through certain lenders.
Some lenders will work with individuals that have their income subsidized by a government program and those that do not meet the $1,800 per month threshold, so even if you do not meet the income threshold, there may be lenders who will work with you.
What Can I Do If My Credit Score Is Lower?
If you have a low credit score or no credit history and do not qualify for a loan from a bank or credit union, you may have to find a lender that specializes in bad credit auto loans. These loans have a higher rate of approval for those with no history or lower credit scores, but the borrower may pay a significantly higher interest rate.
A bad credit loan can allow you to purchase a car and improve your credit by making regular payments. If you are looking for a loan for bad credit or no credit, it is wise to shop around, as the interest rates can vary to a greater extent than a loan from a bank.
New vs. Pre-Owned Vehicles
If your credit score is low, you might benefit from setting your sights a little lower to get more manageable car loan payments. If you are looking at a new car, consider a pre-owned car instead. Being approved for a loan on a pre-owned vehicle is more likely if your credit score is low or you have no credit history. With a pre-owned vehicle, the annual rates may be higher, but on average, a used vehicle will cost much less than a new vehicle. Pre-owned vehicles may not require a deposit and do not have the fees associated with new vehicles.
What Might You Pay on Bad Credit Auto Loans?
If you are approved for an auto loan from a company that specializes in bad credit loans, you may pay a significant amount in interest. The annual percentage rates for bad credit loans can vary, and borrowers with bad credit can expect to pay approximately 10% more in interest than those with excellent credit. An extra 10% annually over the life of the car can add up if you get a five-year loan. It can be helpful to take this into account when choosing a three-year loan if you can make the monthly payments over a five or six-year loan because you inevitably pay more on a longer-term loan.
What Can You Do to Increase Your Chances of Approval?
When you apply for a loan with a bad credit lender, you should be prepared. Know your credit score before you seek out a lender, because you may have more history or a better credit score than you remember. Bring proof of employment, bank statements, and your driver’s license to increase your chances of being approved. Create a budget before you talk to a lender so you know how much you can reasonably pay each month. If you have cash, you may be able to make a down payment to lower the principal amount of the loan.
You can save time and money by shopping around for car loans online to get better rates. If you have no credit history, you may be able to apply for a loan with a cosigner willing to share the loan responsibility. A cosigner would often be a family member or close friend with credit history, but this may not be a good option for everyone.
If your rates are high, you may be able to refinance the loan at a later date with better rates. You may be able to improve your credit score before you get the car loan if you have a few months, or improve your credit score over the time of the car loan. Your payment history and credit utilization have the greatest impact on your credit score, so making payments for a few months may be enough to move your score from bad to good credit.
Saving on Your Car Loan
If you are looking at a premium model or fully-loaded vehicle, you may be able to save money by choosing a base model. You may also save by not taking the first offer from the dealership. Know your budget and avoid accepting any offer that goes over that amount. Make sure that the dealership is transparent about any fees and costs, so you don’t pay for add-ons that you did not intend to buy. Trust your instincts. If you feel the dealership is being too pushy or says you can only take a loan from the dealership, shop around for other deals.
Getting a Car Loan With Bad Credit
If you have bad credit and are looking for a loan, or want to improve your credit score before applying for a car loan, keep in mind that loan rates can vary no matter what. You will have better choices if you improve your credit rating before applying for a loan, but you can also consider choosing a pre-owned vehicle or base model. Know your budget, credit score, and shop around, so you know what rates to expect when you go to the dealership. If you need more information on getting approved for a bad credit loan, contact Ride Approval.