HOW TO FINANCE A CAR WITH BAD CREDIT?

 

How to Finance a Car with Bad Credit or No Credit in Ontario, Canada?

Step 1:  Determine Your Vehicle Needs

Step 2: Decide on Your Budget

Step 3: Check Your Credit Score

Step 4:  Freeze The Budget

Step 5: Negotiate

Step 6:  Watch Out For Additional Products

Step 7: Read Before You Sign

Step 8: Keep The Paperwork

Step 9: Commit to Your Payments

--------------------------------------------------------------------------------

Bargaining with a dealership for a new car is often stressful for customers. Add a bad credit history to the mix and it can be an anxious time indeed. Whether you live in Hamilton, Oshawa, Trenton, Sudbury, Thunder Bay, Belleville, Scarborough, Etobicoke, Brampton, Mississauga, Kitchener, Waterloo, Timmins, London or anywhere else in Ontario, preparation is key when shopping for a car loan with less than stellar credit. There are definite steps you'll want to take before walking into a dealership to ensure a smooth transaction. We've provided some helpful tips below to make the process more successful and less stressful.

Tip 1:  Determine Your Needs

What do you need from your vehicle? You definitely don't want to buy a car that is larger than you require, or that features amenities you really don't need: both lead to higher costs overall. It can be tempting to buy a vehicle with all the latest bells and whistles, but what are your actual day to day needs as a driver? Conversely, do you have a large family, or does your job/business require you to transport goods on a regular basis? You don't do yourself any favours buying a car that fails to meet such needs. Other factors to consider include gas mileage, your total daily commute, and anticipated routine maintenance. Get a firm grip on what you actually need and what costs will be involved in meeting those needs before walking into the dealership. It will lessen the temptation to worsen your financial situation with a car that isn't just right for your individual and family needs.

Tip 2: Budget

Whenever you think about entering into a long-term financing arrangement that involves monthly payments, setting a realistic budget is essential. Check out prices on dealer sites, Kijiji, Auto Trader, Canadian Black Book and manufacturer websites to get a strong feel for the actual prices of makes and models you are considering for purchase. Understanding the true market value of a given vehicle helps prevent overpaying. Another very important consideration is the cost of insurance: before visiting a dealership, arm yourself with quotes from reliable insurance providers. Auto insurance is mandatory in Ontario, and whether you're driving in Toronto or cruising cottage country side-roads up north, you must have valid insurance.  

Keep in mind that the longer a loan contract is, the smaller the monthly payments will be. Ultimately, you will pay more in interest on a more drawn-out arrangement. Many bad credit loans involve 24-36 month terms rather than the standard 48-60 month terms. This is because it reduces risk to the lender should you default; they will have received more money up front. Budget for those smaller loan terms when calculating which sort of vehicle you can truly afford. Click here for our Car Loan Calculator

Tip 3: Credit History

It's surprising how few people check their own credit histories on a consistent basis, especially in these days of increasing identity theft. Before applying for a car loan, contact one of the credit bureaus we rely on here at the dealership: Transunion (www.transunion.ca) or Equifax (www.consumer.equifax.ca/home/en_ca). to determine your exact credit rating. This information can be obtained once per year free of charge and it is essential to have this information before purchasing a car. Beware of agencies posing as credit bureaus and stick to the two we have suggested for your own safety and security.

Buying The Car: With your homework done, you can feel confident walking into the dealership with the facts and figures you need to make an informed and financially reasonable choice of vehicle. Click here to view our Inventory

Tip 4:  Heed The Budget

You went to the effort of making a budget-time to stick to it! It can be somewhat challenging to heed your budget once you're surrounded by shiny new wheels, but it's important to think about the long term. Add-ons will increase your payments and rack up interest, both of which can imperil your ability to make consistent payments on a bad credit loan.

Tip 5: Negotiate

Many Torontonians dread the idea of negotiating, and that's a shame. Since you've already determined the true market worth of a vehicle before visiting the car lot, you have a good grasp on the range of pricing that's possible. It definitely never hurts to ask, because with a bad credit history, your only opportunity to negotiate is with purchase price. The terms of your loan will be dictated by a poor credit history, but the amount you pay for the vehicle may be more flexible than the price sticker initially indicates.

Tip 6: Watch Out for Add-On Services & Products

So you've shaken hands on the purchase price and loan terms-great. This is often the time when a dealer brings up additional products and services you might want to sign on for. But here's the catch: these are likely to jack up the cost of your financing, which in effect, blows the budget you'd been sticking to till now. As someone with a poor credit history, you're already paying a higher interest rate. Don't get talked into any product or service you don't absolutely need. Down the line, when you've restored your credit score, you'll be able to consider extras. Play the long game and stick to your budget at every stage of the purchase process.

Tip 7: Read Before Signing

Contracts make for boring reading, but do yourself a favour before signing and read every clause. Once you ink your name, you are legally obliged to that auto loan contract and there is no turning back. It is your responsibility as a consumer to read your contract. If you have questions, ask. If you feel pressured by the dealer, decline to sign until you can process the terms carefully before signing. Never sign anything that makes you uncomfortable, and be wary of any dealer who brushes off your questions or tries to rush you through a contract.

After The Purchase

You've made the purchase, signed on the dotted line, and your bad credit loan has been approved. You're now driving your new car around the GTA, loving life. Here are some important post-purchase tips to follow.

Tip 8: Keep That Contract

Before leaving the dealership, you should have a copy of your fully signed and dated contract in hand. Do not wait for it to come in the mail, and be sure it has been filled out with one hundred per cent accuracy and completeness. Keep it in a safe place, and for good measure, scan a digital version for online storage as well. If you need to refer to it in future, accessing it will be so much easier this way.

Tip 9: Make Your Payments

As the recipient of a bad credit car loan, you likely already understand the consequences of late or missed payments in your financial life. Set up automatic payments if keeping track of bills is a challenge for you, and whenever possible, pay more to help decrease interest in the longer term. If you find yourself struggling to make the agreed-upon payments, don't throw your hands in the air and avoid paying. Contact the loan provider immediately to see what options are available to you if you feel you might miss a payment. As the high-risk recipient of a loan, even one missed payment can result in the repossession of your vehicle, not to mention further damage to your credit score.

Average Interest Rate for Bad Credit Car Loans

A consumer with good credit pays an average of 4-5% on a loan. Subprime borrowers pay closer to 10-17%, depending on their credit score, and certain lenders may go even higher.


Related Links

Get Pre-approved here

Car Loan Payment Calculator

Step by Step guide on bad credit auto financing

Step by Step guide on auto financing after bankruptcy

How to get a student car loan?

Leasing vs Financing a Vehicle