Bad credit isn’t the end of the world. Plenty of Canadians suffer from bad credit – nearly 20% of Canadians have a credit score that’s under 680, which is considered “bad” credit.
However, bad credit can still make your life difficult. If you have a bad credit score, you may have trouble renting an apartment, opening new lines of credit, and getting auto loans.
Auto loans in particular are a big problem for people with bad credit. In most Canadian cities, having a car is not optional – you need one to get to work, to visit loved ones, and to continue living your life normally.
To help those among us who have bad credit but are still looking to buy a great car and get a reasonable deal on an auto loan, here is a basic, 5 step guide toward buying a great car – no matter what your credit score may be.
Step 1: Understand Your Finances
When you’re shopping for a car, this should be your first step. Chances are that, if you have bad credit, you’ve had your share of financial difficulties in the past.
Whether you’ve defaulted on your student loan, had a car repossessed in the past, dealt with large amounts of credit card debt, or even gone through bankruptcy, a low credit score means that you’ve had difficulty controlling your finances.
So the first step you should take is to truly understand your financial situation. How much money are you making? How much can you afford to spend on a car? Can you minimize expenses such as going out to eat, reducing spending of disposable income, or buying fewer luxury items?
Also, you should check your credit score. You may know that it’s bad, but you might not know exactly why. Identifying the reasons behind bad credit can be very helpful as you work to rebuild your credit score and secure an auto loan.
Step 2: Work To Rebuild Your Credit
Rebuilding your credit takes a while. Most negative credit factors stick around for years – 3-5 years for charge-offs, up to 7 years for loan defaults, and up to 10 years for bankruptcy.
But that doesn’t mean you shouldn’t try to rebuild your credit. Here are a few steps you can take to do so.
- Pay all of your bills on time. Always. If you still have outstanding credit card debt, begin paying it down, if possible – lenders may still make a fuss about not getting paid the full amount at once, but they prefer payment over non-payment.
- Get a secured credit card. If you have bad credit, this may be your only option. These cards require an up-front deposit as collateral, reducing your risk and allowing you to start rebuilding your credit by making timely repayments on your balance.
- Get a co-signed credit card. This requires commitment from a friend or family member. Basically, your cosigner will be responsible for repaying if you don’t pay. This reduces the risk of the card – but means that your cosigner will suffer from a credit drop if you are not responsible.
These steps can help you rebuild your credit. In addition, look for any discrepancies on your credit report – it’s possible that there are some negative charges you could dispute, such as inaccurate charge-offs.
Step 3: Set A Reasonable Budget
This is very important. You need to have a reasonable budget for your auto loan – and you should factor in, a higher APR. Most traditional auto lenders will have APRs of over 10% for people with bad credit, so you may not be able to spend as much on your vehicle as you anticipated.
If you don’t set a reasonable budget, you risk failing to repay – and getting your car repossessed. If that happens, it will devastate your ability to get another auto loan, and further harm your credit score.
Step 4: Look For Lender Pre-Approval – And Find The Right Dealership
Lender pre-approval can be useful if you’re negotiating to get an auto loan. Basically, if you go to a lender and they look over your finances and decide you’re eligible for a loan – even at a high APR – you will have more leverage when negotiating with auto dealerships and their preferred lenders.
Also, you should not look to auto dealerships that do their own financing in-house. These dealerships will always have their bottom line in mind – and may set you up with a high APR loan that is purpose-built to squeeze the most money out of you. Only work with a used car dealership that deals with reputable lenders – and doesn’t do in-house lending.
Step 5: Negotiate A Great Rate For Your Auto Loan
You don’t have to take just any rate you’re offered for your auto loan. You can still negotiate. If you have proof that you’re doing your best to improve your financial situation, and that you have enough income to easily repay your auto loan, you can negotiate a better APR, a better repayment timeline, and even lower your down payments.
Bad Credit? Need A Great Car? Look No Further Than Ride Time!
These above steps should be taken if you’re looking to rebuild your credit. But if you need a car quickly and have bad credit – and no time to improve your situation – don’t worry. Ride Time can help you with getting incredible rates on fantastic cars.
Our unique business model is based off of our special relationships with a unique network of 15+ lenders – if you have a valid driver’s licence, have had a job for more than 3 months, and make more than $1500/mo before deductions, we can guarantee you an auto loan on a great used car.
Bad credit isn’t the end of the world – and everyone deserves a second chance. At Ride Time, that’s what we believe.
So whether you’re in Winnipeg, or anywhere across Canada, check out our website, find the perfect car for your needs, and provide some basic information about your income, employment status, and driver’s licence, and get a great rate on a fantastic vehicle today.