If you’ve never been in debt, and you don’t have any outstanding bills or other claims against you, you may think that you’ve got a pretty good credit score. After all, you’ve never had a negative claim against you – so you must be doing pretty well!
Unfortunately, this is not the truth. If you don’t have any active credit accounts – and haven’t for multiple years, you may not have a credit score at all. It seems ironic, but the only way to build up a good credit score is to take on small amounts of debt, and ensure they’re repaid on time.
If you don’t have a credit score, or you have bad credit in Canada, things can be tough if you plan to purchase a car. Here are a few things you should expect if you don’t have a credit score in Canada, and try to buy a car.
1. Loan Pre-Approval Is The Best Way To Get A Good Rate
If you don’t have a credit score, it may be hard to get pre-approved for a loan. However, it’s still a good idea to visit multiple lenders, and see if they are willing to work with you, and pre-approve you for an auto loan.
You’ll need to bring in proof of income and fiscal responsibility, as well as other documentation, in some cases. Try visiting local banks and credit unions, and explaining your situation in-person – you are financially responsible, but simply do not have a long credit history. A loan officer may be willing to work with you, and pre-approve you for a loan.
2. You’ll Need To Make A Large Down Payment
If you have no credit, the dealership may expect you to make a large down payment – up to 50% of the value of the vehicle, in some cases. Putting down as much money as possible is a good idea, as it also reduces the monthly payments you’ll have to make dramatically.
However, make sure that you have enough money left to take care of any emergencies, and ensure you don’t default on your loan
3. You Should Expect A High APR – But You Can Get A Lower Rate With A Co-Signer
The APR for someone with no credit in Canada may be up to 25%. If you have no credit score, you’re essentially lumped in with people who have extremely bad credit – even if you are financially responsible. Lenders simply have no evidence that you can repay your debts.
However, a co-signer can help you get a much better rate. When you have a co-signer, their credit score is used to determine your APR, and they are on the hook for the full cost of the loan, should you default.
If you’re considering asking someone to co-sign with you, be responsible. Make them aware of the risks, and ensure that you’re financially healthy enough to afford the car you’re purchasing. Otherwise, you risk ruining their credit score and their finances.
5. You May Be Able To Negotiate A Lower Rate
In some cases, auto dealers will give you a lower APR if you add-on additional services, such as extended warranties and gap insurance.
This is because an extended warranty helps ensure the car will be maintained properly, and gap insurance will cover the cost difference between the vehicle’s value and the insurance payout if it’s totaled.
Combined, these services give the lender peace of mind, knowing that the vehicle will be cared for. You can often drop your APR significantly if you choose to add on these options, though the total cost of the loan will be increased.
6. You Can Refinance In 3-6 Months
It only takes a few months of regular auto and credit card payments to build up a reasonable credit score. Keep an eye on your credit score. As soon as you think it’s good enough, you should start looking to refinance your loan.
If you can refinance and you have a good credit score, you may be able to drop your APR significantly, and reduce both the monthly payments and total cost of your loan.
Follow These Tips To Get A Better Deal – Even If You Have No Credit!
Buying a car with no credit is not impossible, but it’s often quite a bit more expensive than if you had good credit.
However, at Ride Time, we specialize in selling high-quality used vehicles to Canadians with bad credit – and no credit at all!
We have a network of lenders that are specialists in lending to people with bad credit. We can guarantee you a reasonable rate on a used vehicle as long as you make $1,500 CAD/month before deductions, have proof of employment for 3+ months, and are a licensed Canadian driver.
So browse our cars today, and see how you can get a great deal on the car you need from Ride Time!