Bad credit is a big problem in Canada. Around 20% of Canadians have a credit score that falls under 680 – meaning that they are a credit risk, and are unlikely to qualify for the best interest rates on home loans, personal loans, and auto loans.
And rebuilding your credit is difficult. It’s a vicious cycle – even if you have been out of debt for several years, a low credit score means that nobody will lend money to you. If you can’t get anybody to finance you for whatever reason, you can’t build your credit score – and so on.
It is a catch 22 situation which is pretty difficult to get out of, and it takes diligence and smart financial moves to rebuild your credit score. And even if you do a great job rebuilding your credit, it can still take years to recovery from a charge-off, bankruptcy, or loan default.
How Can I Rebuild My Credit In Canada?
There are ways in which people with bad credit can secure loans to help them rebuild their credit. Signature loans are common – but risky. These loans require no collateral, and have high interest rates.
Secured credit cards are also useful – they require a deposit, and paying your bills on time allows you to build your credit – but it can take a while for your credit score to be affected positively by a secured credit card.
However, the best way to rebuild your credit without worrying about high APRs or hidden fees is with a smart auto loan. This is because, unlike a signature loan, or even a payday loan, an auto loan is secured, allowing you to get a lower APR, and have an easier time making payments – even if you are in a poor financial situation.
Secured Debt Vs. Unsecured Debt
Having bad credit means, essentially, that you’re a risky borrower. You have failed to pay your debts in the past – and that means that any lender who gives you money is taking a risk.
This is especially true with unsecured debt. Unsecured debt is any debt in which the borrower doesn’t put up collateral.
Since there is no easy recourse for a lender if you default, APRs tend to be very high for borrowers with bad credit, as they’re high-risk, and the lender cannot immediately repossess any of your property in case of non-payment.
Secured debt is a loan in which a lender has claim to a specific piece of property as collateral in case of non-payment.
Mortgages and auto loans are the most common forms of secured debt – if you don’t pay your mortgage, your home will be foreclosed upon, and if you don’t pay your auto loan, your car can be repossessed.
Though this may seem scary, it’s a good thing – since a bank or lender has a simple way they can claim payment in case you fail to render your own payments, they will offer you lower interest rates – even if you have bad credit.
A Smart Auto Loan Helps You Rebuild Your Credit
Even if you’ve been paying your bills on time, paying down a secured credit card, and taking other steps toward rebuilding your own credit score, lenders like to see a mix of different types of debt – rotating vs. installment, secured vs. unsecured, and so on.
The more types of debts you have – and are able to pay off successfully – the more your credit score will grow.
It’s important to note that we are absolutely not suggesting that you go into debt just to rebuild your credit score. If you take out loans, you can’t afford and fail to pay, you will be in a much worse position than if you had simply stayed out of debt.
However, it is a fact that you can’t rebuild your credit score without taking on debts. And if you have a bad credit score, a smart auto loan that you can afford is a great way to take on a low-APR, secured form of debt – and replace your old, worn-out car to boot.
Come To Ride Time For A Great Selection Of Used Cars – And Get A Great Rate On An Auto Loan
Ride Time doesn’t claim to be able to rebuild your credit. Only you can take steps towards a debt-free life – nobody else can “help” you rebuild your credit.
However, if you are interested in a used car and are looking for a great rate on an auto loan, we can certainly help you find the best used car – and the best auto loan – for your specific needs.
We operate with a network of over 15 specialized Canadian lenders – we can guarantee you a loan on a great used car as long as you have a valid Canadian driver’s licence, have been employed for more than three months, and bring home at least $1500/mo before deductions.
Bad credit, good credit, or no credit – if you can meet those following qualifications, we can help you get into a great used car.
So visit our website today – we deliver cars all over Canada – or come into our Winnipeg store to take a look at our cars and have a conversation about your financial situation, and how you can find the best rate on a smart auto loan.