Most of us don’t have 20 or 30 grand in the bank; a third of us have less than $10,000. With the average car costing more than three times that, many Canadians are forced to finance our vehicles. But securing that financing can be difficult if you have average or below average credit.
Let us make getting that bad credit car loan a little easier.
Sometimes poor credit scores arise from a misunderstanding of what goes into building one. As you can see from the chart below, it’s about so much more than whether or not you pay your bills on time.
A credit score below 620 lets lenders know that you haven’t always borrowed responsibly. Maybe a divorce drove you into bankruptcy, or you ended up defaulting on a loan after a job loss. Whatever caused your credit problems, know that you’re not alone. FICO concluded that approximately 21-percent of borrowers had subprime credit in 2016.
Regardless of why your score tanked, lenders will see you as a liability. Therefore, you’ll either end up paying higher interest rates or struggle to get approved at all. That’s why you should try and fix your credit first.
Unfortunately, there’s no easy way to get your credit score out of the gutter. The amount of time it takes varies depending on what drove you there in the first place. While some things can be fixed in a month or two, such as a reporting error, others can take years to fall off. Bankruptcies, for example, can leave their mark on your credit up to six years after discharge.
Fortunately, you can these steps to stabilize it:
First off, avoid those ‘buy-here, pay-here’ dealers like the plague. These dealers not only charge astronomical interest rates but usually stipulate that bills be paid in person.
John Oliver explored their predatory practices in this thought-provoking piece.
If buy-here, pay-here lenders are out, what next? First, you should reach out to any banks or credit lenders you have established a relationship with. They’ll be more likely to cut you a favorable deal. If those don’t pan out, find three to four other lenders with above-average reviews. You can also consider going with a charitable organization or non-profit.
Heck, you can even give us a try.
Just make sure you finish all those bad credit car loan applications within a fortnight. Having too many hard credit inquiries in too long of a time period can further bruise your credit.
There are a few things you can do to make securing a bad credit car loan a little bit easier. These are:
If a lender turns you down, don’t take it as an insult. They’re just trying to keep you out of financial trouble. And, since they’re required to tell you why you were denied, that action can give you some valuable insight into what’s going on. If it’s because of something on your credit report, the law also mandates that they give you a copy. This can save you from having to pay for one yourself.
Don’t let that denial stop you from trying! Just find a different bank and try again. If you find yourself at a dead end, take a break and save up for a bigger down payment. Or, if you need a car right away, see if you can find someone willing to cosign or co-borrow for you.
You’ve picked a car, secured financing, and are getting ready to handle the paperwork. Unfortunately, there’s more to it than that.
When you buy a car from a dealer, they’ll typically take care of the title and registration. But, before they hand you those keys, you’ll have to provide them with proof of income and proof of insurance.
Just don’t be surprised if your poor credit leaves you paying a premium on the latter too.
After about a year of making consistent payments, you might want to consider refinancing. And, not only because your credit score may have gone up. That money you’ve been throwing at the bank also improved your loan-to-value ratio and lowered your overall balance. This will result in a better interest rate and, in some cases, a lower monthly payment.
It’s important that you face the problem before you’re too deep to climb your way back out. If you are struggling to make payments, you need to start by reaching out to your lender. Most banks are eager to help you avoid defaulting. Without you, they don’t make any money.
If the things that affected your ability to pay are short term, most lenders will defer your payments for a couple of months. While interest will continue to accrue, you’ll be freed from the burden of making a monthly payment. If you can scrounge some money together, you should still throw some money at that accruing interest.
For longer-term issues like a job loss or disability, lenders may offer to restructure the loan to better align it with your needs. This often means extending your loan term or lowering your interest rate. If these things won’t help, it might be time to sell your vehicle.
Having poor credit shouldn’t doom you to a life of duct-taped jalopies. That’s why we’re proud to affiliate with lenders who believe in second chances as much as we do.
So, go ahead, fill out our application, and see what you qualify for.