Car Deal Canada

Guide to Bad Credit Car Dealerships

Guide to Bad Credit Car Dealerships

We’ve all been there. Life throws an unexpected financial curveball and your credit score takes a hit. Maybe you lost your job for a few months during the pandemic or faced expensive medical bills. But now your old car has finally broken down for good and you desperately need reliable transportation to get to work and take care of your family.

Having bad credit can make it feel impossible to get approved for an auto loan and find a quality used car. You may feel stuck or tempted to just give up, but there are options out there. With the right strategy, you can get financing and be driving again even if your credit is less than stellar.

This guide will outline the steps you need to take to boost your chances of getting approved for a car loan despite poor credit. We’ll cover how to improve your score, find specialty lenders, secure the best terms possible, and more. With determination and smart planning, bad credit doesn’t have to keep you stranded without your own set of wheels.

Get Pre-Qualified in Under 60 Seconds

All Credit Approved and 0 Money Down Options Available


What is a Bad Credit Score?

Your credit score is a three-digit number that gives lenders a quick snapshot of your creditworthiness and ability to repay loans. Credit scores range from 300 to 850. The higher your score, the lower the risk you pose to lenders. Here is how the score ranges generally break down:


  • 800-850: Excellent
  • 740-799: Very Good
  • 670-739: Good
  • 580-669: Fair
  • Below 580: Bad


Most lenders consider a credit score below 600 to be poor or bad credit. This signals to lenders that you may be a high-risk borrower who is more likely to default on repaying a loan. Those with bad credit tend to have a history of missed or late payments, maxed out credit cards, collection accounts, or even bankruptcies – all factors that make lenders hesitant to approve a loan.


Why Lenders View Bad Credit as Risky

Lenders are hesitant to approve auto loans for borrowers with bad credit because they view it as an indicator of potential risk. A bad credit score is often the result of a history of missed payments, late payments, collections, and other negative information on your credit report. From a lender’s perspective, this type of financial track record suggests you may be unreliable and have a higher likelihood of defaulting on a new auto loan.

When you miss payments frequently or make them late, it gives the impression that you are not able to manage credit responsibly. Lenders worry that you may exhibit the same behavior with a new loan, failing to make payments on time. Since an auto loan is secured debt using the vehicle as collateral, defaulting could lead the lender to repossess the car and sell it to try to recoup their losses.

The higher the credit risk a borrower presents, the more hesitant lenders become about approving financing. That’s why those with poor credit scores often have a harder time finding affordable loan options from mainstream lenders. Their past financial mistakes make lenders apprehensive about taking a chance on them.


Specialty Lenders for Bad Credit

If your credit score falls below 600, you may have a hard time getting approved for an auto loan from a traditional bank or credit union. However, there are lenders that specialize in providing financing to borrowers with poor credit histories.

These types of lenders are known as subprime lenders. They are willing to take on higher risk borrowers in exchange for charging higher interest rates and requiring larger down payments. Many subprime lenders cater specifically to applicants with credit scores around 500-550 and below.

Finding a subprime auto lender near you may require some digging. Look for “Buy Here Pay Here” used car lots in your area, as they often provide their own in-house financing without even checking your credit. You can also search online directory listings for “Bad Credit Car Loans” or “No Credit Auto Financing” to find local specialists.

While their loan terms won’t be as favorable, subprime lenders provide an opportunity to get approved when you’d likely be denied elsewhere. Be prepared for higher APRs, more fees, and stricter loan requirements in exchange for their willingness to work with your credit situation.


Improving Your Credit Score Before Applying for Auto Loans

Even a small boost in your credit score can significantly improve your chances of getting approved for an auto loan. Here are some tips to raise your score before you apply:


Dispute Any Errors on Your Credit Report

Request copies of your credit reports from the three major credit bureaus – Equifax, Experian, and TransUnion. Thoroughly review the reports and dispute any inaccurate or unverified information that may be dragging down your score. This can include late payments, collections, or other derogatory marks that you don’t recognize. The credit bureau is legally obligated to investigate disputed items.


Pay Down Revolving Account Balances

Try to lower the balances on any credit cards, lines of credit, or other revolving accounts. The credit utilization ratio (how much you owe versus the total credit limit) makes up a significant portion of your score. Even reducing balances by 10-20% can boost your score.


Become an Authorized User

Ask a family member or friend with excellent credit to add you as an authorized user on their credit card. This can improve your credit mix by adding a positive revolving account. Just make sure they have low balances relative to the credit limit.

With a little work, you may be able to improve your credit score significantly in just a couple months before applying for an auto loan. Those extra points could make all the difference in getting approved and securing a low interest rate.


Secured Car Loans

A secured car loan is one option for borrowers with poor credit to get approved for financing. With a secured auto loan, you provide collateral to secure the loan and reduce the lender’s risk. The collateral is typically the car itself. Here’s an overview of how secured car loans work:

The lender places a lien on the vehicle title. If you default on the loan, they can repossess the car and sell it to recover their losses. Knowing they have this protection makes lenders more willing to approve applicants with low credit scores.

To get a secured loan, you’ll likely need to provide a down payment of at least 10-20% of the car’s value. This further reduces the lender’s risk exposure if they did need to repossess and sell the vehicle.

The pros of secured loans are that they make approval more likely for poor credit borrowers who may not qualify otherwise. The cons are that you could lose your car if you can’t make the payments. The down payment requirement is also higher than with regular auto loans.

Overall, secured financing allows those with bad credit access to a car that may not be possible otherwise. Just make sure you can realistically handle the monthly payments to avoid repossession.



If your credit is poor, getting a co-signer with good credit is one of the best ways to improve your chances of getting approved. A co-signer agrees to be equally responsible for repaying the auto loan. This gives the lender more confidence since your co-signer’s good credit essentially guarantees the loan.

However, being a co-signer comes with risks that the person should fully understand. If you stop making payments, the responsibility falls on them. Defaulting on the loan can negatively impact their credit. And co-signers are not usually able to repossess the vehicle if you stop paying. Have an open discussion about expectations before asking someone to co-sign your auto loan.


Buy Here Pay Here Dealerships

One option to get financing with bad credit is through buy here pay here (BHPH) dealerships. These dealers are different than traditional dealerships in a few key ways:

BHPH dealerships finance the car loans themselves rather than going through a third party lender. This allows them to be more flexible with approvals, even for customers with very poor credit or no established credit history. The application and approval process is handled directly through the BHPH dealer.

Since they are taking on more risk, BHPH dealers will charge higher interest rates, typically in the range of 15-25% APR. They also tend to sell older used cars that are lower cost for $5,000-$10,000 on average.

The benefit of BHPH is that they report your on-time payments to the credit bureaus each month. So making consistent payments can help rebuild and improve your credit over time. Just be sure to compare interest rates at other dealerships as well, since BHPH is often the most expensive option.


Down Payment Options

Coming up with a down payment is one of the biggest hurdles for those with poor credit seeking an auto loan. Most mainstream lenders want to see a down payment of 20% or higher on the car’s purchase price. But with bad credit, you’ll likely need an even larger down payment to get approved.

Putting down a more substantial down payment shows the lender you are financially committed to the loan. It also lowers the amount being financed, which reduces the lender’s risk. If you default on the loan, they have more equity in the vehicle to repossess and sell to recoup losses.

Aim to put down at least 20-30% if your credit score is very low. Some bad credit lenders may approve loans with less down, but the terms won’t be as favorable. Saving up to put down one-third of the car’s cost or more can lead to better options.

Using the value of an existing car as a trade-in is one of the best ways to raise your down payment amount. Even if you still owe money on the trade-in, its value helps offset the price of the new car. Paying cash from your savings for any portion of the down payment also lowers the amount you have to finance.

Increasing your down payment, even by just a few thousand dollars, can be what sways an iffy lender to approve your bad credit auto loan. The more money you put down upfront, the better chance you have of overcoming your poor credit score.


Interest Rates

When you have bad credit, you can expect to pay a higher interest rate on an auto loan compared to someone with excellent credit. Interest rates on car loans for those with bad credit typically range from 9% up to over 20%, while those with good credit can qualify for rates as low as 3%.

The interest rate has a big impact on your total loan cost, so it’s important to negotiate the lowest rate possible. Here are some tips to get the best rate with bad credit:


  • Shop rates from multiple lenders as rates can vary significantly.
  • Consider having a co-signer with better credit sign onto the loan to qualify for a lower rate.
  • Offer to put down a larger down payment, as a higher down payment signals lower risk to the lender.
  • Ask the lender if they offer rate discounts for setting up automatic payments or taking a shorter loan term.
  • Build your credit score before applying if time allows, as every extra point can help.


While bad credit limits your options, taking the time to negotiate your interest rate can save you hundreds or even thousands over the loan term. Persistence and shopping around increases your chances of qualifying for the most competitive rate possible.


Loan Term

When applying for a bad credit auto loan, one of the key factors that determines your monthly payment is the length of the loan term. Many lenders will offer terms ranging from 24 months up to 84 months (7 years). The longer the term, the lower your monthly payments will be. However, that also means you’ll be paying interest over a longer period, increasing the total cost of the loan.

For example, a $15,000 loan at 15% interest with a 24 month term would have monthly payments around $769 and total interest paid of $2,456. The same loan at a 72 month term would be only $349 per month but total interest jumps up to $7,524.

It can be tempting to stretch out the term to get lower payments you can afford. But long 6 or 7 year loans also mean you’re likely to be upside down on the loan for a large portion of the term, owing more than the car is worth. This makes it very difficult to sell or trade in until the last couple years of the loan.

As a rule of thumb, try to find a happy medium around a 36-48 month term. This keeps payments manageable while limiting interest paid over the life of the loan. Also consider putting more money down upfront to lower the amount financed and required monthly payment.


Buying Older Used Cars

With bad credit, opting for an older used car can help increase your chances of getting approved for financing. Since the vehicle is worth less, the loan amount tends to be lower which is less risky for subprime lenders. The age and mileage on the car also means it has already depreciated significantly from its initial price. This makes it easier to get approved for a loan that is a higher percentage of the car’s value.

While buying an older used car can make getting a loan easier, it also comes with some potential drawbacks. Maintenance and repair costs will likely be higher with an older vehicle that already has significant wear and tear. Critical components like the transmission may need to be replaced soon after purchasing. You’ll also miss out on the latest safety and technology features that come with newer model year vehicles.

The ideal strategy is to find the newest and lowest mileage used car possible that you can still get approved to finance given your credit constraints. This balances the ease of approval with limiting the extra costs and headaches that can come with a high-mileage, aging used car.


Shop Multiple Lenders to Compare Loan Offers

Why is it so important to get quotes from multiple lenders when you have bad credit? Because loan terms can vary widely, and shopping around is the best way to find the most competitive interest rates and overall loan costs.

With bad credit, you’ll likely start off at a higher rate from any given lender. But some may charge exorbitant rates while others are more reasonable. Checking with several lenders gives you options to choose from and leverage for negotiations.

Start by researching bad credit car dealers in your area. Check online reviews and the BBB for red flags about deceptive practices. Then inquire with at least 3-5 dealers about loan pre-approval and compare the loan details side-by-side.

You’ll want to look at factors like:


  • Interest rates
  • Length of the loan term
  • Size of any down payment required
  • Overall fees and costs associated


If you find a much lower rate from one dealer, bring that to the others to see if they can beat it. Having competing loan offers strengthens your negotiating position. Just avoid stretching yourself too thin with the lowest monthly payment possible. Make sure you can truly afford the payments.

Being a smart shopper is key to getting reasonable loan terms despite bad credit. Don’t settle for the first deal you’re offered without exploring other options in your local market.


Avoid Loan Scams

When shopping for a bad credit auto loan, it’s important to be on the lookout for potential scams. Unethical lenders may try to take advantage of your situation with tactics like:


  • Inflated pricing – Some dealerships or lenders may artificially increase the price of the car or your interest rate simply because you have bad credit. Make sure you comparison shop rates.
  • Yo-yo financing – This is when a dealer lets you drive away with a car before the financing is finalized. If it falls through, they may pressure you into accepting a higher interest rate.
  • Spot delivery – Similar to yo-yo financing, the dealer lets you take the car home before the financing is complete. You may get calls later demanding more money down.
  • Fee packing – Unnecessary fees get tacked on to the loan, increasing the amount you end up paying.
  • Straw purchases – The dealer persuades you to put someone else’s name on the loan application even though you will be the primary driver.


Protect yourself by thoroughly reading all paperwork, resisting high-pressure sales tactics, comparing loan offers, and walking away from any deal that seems suspicious. Having your financing pre-approved can also help avoid scams.



Getting approved for an auto loan when you have bad credit may seem daunting, but it is possible with the right strategy. The most important steps are finding specialty subprime lenders, taking action to improve your credit score, coming up with a larger down payment, and being flexible on the vehicle you choose. Having a co-signer with good credit on your application can also increase the chances for approval. Don’t get discouraged if one lender declines you – make sure to shop around and compare rates, as the terms can vary widely. And watch out for potential loan scams along the way by verifying licenses and fees upfront. By following the advice outlined here and staying determined, you can get back on the road with a reliable vehicle, even with less-than-perfect credit.

Now is the time to get started – search for lenders willing to work with your credit situation and begin the pre-approval process. With persistence and the right financing partner, you can rebuild and improve your credit while getting the transportation you need.

Get Approved Today

See if you qualify in under 60 seconds

Questions About Bad Credit Car Dealerships

Yes, it is possible to buy a car in Canada even if you have bad credit. Many dealerships work with special finance lenders that provide car loans to applicants with poor or no credit. The interest rates may be higher compared to traditional auto loans, but you can still potentially get approved.

In Canada, a credit score below 600 is generally considered poor or bad credit by most lenders. Applicants with scores in the 300-500 range will have the most difficulty getting approved for a car loan from a mainstream lender. However, some subprime lenders may work with scores as low as 300.


When applying for a car loan with bad credit in Canada, you will likely need to provide proof of income, residency status, driver’s license, car insurance, references, and possibly a down payment. Having steady income and a down payment shows the lender you can afford the monthly payments.

In Canada, the main types of lenders that provide auto loans to borrowers with poor credit include subprime lenders, buy here pay here dealerships, and some major banks or credit unions with special financing programs. Online lenders also cater to applicants with less-than-perfect credit.

For a car loan from a special finance lender in Canada, applicants with bad credit can expect average interest rates between 15-25% for both new and used vehicles. With interest rates that high, it’s critical to get approved for the lowest rate possible based on your specific credit situation.

Tips to boost your chances of getting approved for a bad credit auto loan in Canada include:

– Having a steady job and income

– Putting 10-20% down on the vehicle purchase

– Having a co-signer with good credit

– Reducing other monthly debt obligations

– Providing references from your employer, landlord, etc.

– Having proof of auto insurance rates

Simply applying for a traditional car loan is unlikely to hurt your credit score much, if at all. However, if a lender performs a hard credit inquiry and then denies you for the loan, that could cause a small, temporary drop in your score. Too many hard inquiries and denials can have a larger, more lasting impact.


Most lenders in Canada require you to have successfully completed a consumer proposal at least 1-2 years prior before they will consider approving you for a car loan. The longer it has been since the proposal was filed, the better chances you have of getting approved assuming you have reestablished positive credit in the meantime.

If denied for a traditional car loan, other options in Canada include applying with other subprime lenders, looking at dealerships that offer buy here pay here financing, considering a co-signer, exploring secured loan options using collateral, or waiting to rebuild your credit further before reapplying. Saving a larger down payment can also offset credit risk.

Yes, buy here pay here dealerships can repossess your car in Canada if you fail to make payments as agreed upon in the loan contract. These dealerships hold the car title until you finish paying, so defaulting gives them the right to take the vehicle back through voluntary repossession or court order.

Pros of using an auto loan broker include saving time researching lenders, customized loan options, assisting with the application process, and negotiating better approval odds or interest rates. Cons can include paying broker fees and providing personal information to an additional party. Do your due diligence vetting potential brokers.

Compact and subcompact vehicle models tend to be the easiest for lenders to finance to buyers with bad credit in Canada. Less expensive cars mean smaller loan amounts, so the lender’s risk is lower compared to financing pricier trucks or SUVs. Used cars also require smaller loans than new.

In Canada, drivers with poor credit can expect to pay $250-400 per month or more for full auto insurance coverage depending on exact age, location, driving history, vehicle type, desired coverage limits and deductibles. Shop multiple quotes to find the best rate possible.

Tips for improving your credit after getting a subprime car loan in Canada include:

– Making all payments on time

– Paying more than the minimum due

– Paying off the loan early

– Keeping credit card balances low

– Checking for and disputing errors on your credit reports

– Not taking on additional debt right away

Most lenders in Canada require you to have made 12 months of consistent on-time payments on your existing car loan before considering you for refinancing. If you have significantly improved your credit score or income, refinancing could then lower your interest rate and payments.


If self-employed, documentation lenders may require for a Canada car loan with bad credit can include:

– Proof of income (recent tax returns, bank statements)

– Documentation of business registration

– Financial statements showing business assets/liabilities

– List of business references

– Proof of personal residency

Specific income requirements for bad credit car loans vary slightly by lender in Canada, but most have minimums in the range of $1,600 – $2,000 or more in take home monthly income. Gross annual income requirements are often in the $25,000 – $35,000+ range. Provide recent pay stubs.

Get Approved Today

See if you qualify in under 60 seconds