Car Deal Canada

The Best Cars For Bad Credit

The Best Cars For Bad Credit

Over 4 million Canadians have credit scores below 600, which lenders classify as poor or bad credit. For these consumers, getting approved for a car loan can be an uphill battle. With bad credit, you’re often paying higher interest rates, lower loan amounts, and confronting more rejections from lenders. But while the odds are stacked against you, getting reliable wheels is still possible with the right strategy and financial diligence.


This comprehensive guide covers the best practices for securing auto financing even with less-than-ideal credit. You’ll learn which automakers and dealerships offer the most accessible terms for subprime borrowers. We provide tips to improve your chances of getting approved for a loan or lease. And we walk through alternatives if your application still gets declined. With prudent planning and an understanding of how to work with specialized subprime lenders, Canadians with bad credit can still find affordable financing options and the vehicles they need.

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Why Bad Credit Makes Getting a Car Loan Hard

Your credit score is one of the main factors lenders use to determine your interest rate and eligibility when applying for a car loan. Credit scores range from 300-850, with higher scores signaling lower risk to lenders. Anything below 620 is generally considered bad credit, while scores between 620-679 fall into the subprime category.

With bad credit, lenders see you as a riskier borrower who may struggle to repay the auto loan. As a result, they will charge higher interest rates to offset that risk. Where prime borrowers may qualify for rates of 4-6%, subprime loans often come with rates of 10-20% or even higher. Lenders also require larger down payments from borrowers with lower scores, typically 10-20% of the vehicle price or a minimum of $1,000-$2,000.

Higher rates and down payments make buying a car much more expensive for those with bad credit. But understanding what lenders are looking for and taking steps to improve your application can increase the chances of getting approved on more affordable terms.

 

Top Car Brands For Bad Credit Financing

When shopping for a car loan with bad credit, it’s important to focus your search on specific makes and models that lenders are more likely to approve financing for. Certain brands have developed programs and incentives aimed at borrowers with past credit challenges. Concentrating on these car companies can significantly increase your chances of getting approved for the car you need.

Here are some of the top car brands to consider if you need financing with bad credit:

 

Kia and Hyundai consistently offer some of the most accessible loan terms to subprime borrowers seeking new vehicles. Their widespread dealer network provides financing opportunities nationwide. Both brands promote special financing offers that make approval more likely for those with less-than-perfect credit.

 

Toyota and Honda certified used vehicles offer the reliability and retain value better than other brands, making them lower-risk collateral for lenders. Opting for a certified model can make approval more attainable. These brands are also known for working with subprime lenders to expand financing options.

 

Domestic brands like Ford and GM often promote special financing offers that can overlook credit challenges. Regional incentives are commonly advertised that feature reduced interest rates or even zero-down offers for those who qualify. Checking for specials in your area could present an auto financing opportunity.

 

While every individual’s situation is different, focusing your search on the makes and models from these manufacturer’s can potentially increase your odds of getting approved for an auto loan despite having bad credit. Their programs are designed specifically to help subprime borrowers get financed.

 

Focus on Used Cars For Better Terms

When shopping for a vehicle with bad credit, it’s generally recommended to focus your search on used cars priced under $15,000. There are several reasons why used vehicles in this price range make the most sense for subprime borrowers:

 

Firstly, the lower sticker price means lenders are taking on less risk, allowing them to offer more favorable loan terms. New cars lose a significant portion of their value the moment they’re driven off the lot, whereas a 2-3 year old used car has already taken that initial depreciation hit. The savings get passed on to buyers through lower monthly payments.

Secondly, well-maintained used cars around 3 years old by trustworthy brands like Toyota and Honda are likely to provide years of reliable service. Opting for a make and model with a solid reputation for longevity and lower maintenance costs helps minimize the risk of default for lenders.

Lastly, private sales often offer the best pricing on used vehicles, but will require payment in full. On the other hand, dealers can secure financing more readily, but charge higher prices. With bad credit, it’s usually better to pay a premium and work with a dealer able to arrange a loan, even if the interest rate is higher.

 

By targeting reasonably-priced used cars in good condition from reliable brands, those with poor credit stand the best chance of getting approved for a loan they can actually afford, while still ending up with a vehicle that should meet their needs.

 

7 Tips For Getting Approved For a Bad Credit Auto Loan

Getting approved for an auto loan when you have bad credit can seem daunting, but it is possible with the right preparation and strategy. Here are 7 tips to strengthen your chances of securing financing despite credit challenges:

 

  1. Make a 10-20% downpayment – Putting down a sizable down payment shows lenders you are invested in the purchase, and it reduces their risk exposure on the loan. Aim for 10-20% if possible.
  1. Provide proof of steady income – Lenders want to see you have consistent income to afford the monthly payments. Bring recent pay stubs, tax returns, or profit/loss statements.
  1. Add a cosigner if possible – Having a cosigner with good credit can improve the chances of approval substantially. Make sure the cosigner understands the implications.
  1. Reduce existing debts before applying – Pay down credit cards and other debts to lower your debt-to-income ratio. This shows improved financial health.
  1. Limit new credit checks before applying – Each hard credit check can lower your score slightly. Avoid too many in a short timeframe.
  1. Get preapproved by several lenders – Shop for the best terms, but only accept what you can truly afford. Multiple checks within a short period count as one inquiry.
  1. If declined, wait 6 months before reapplying – Use the time to continue improving your credit and financial profile for better results on the next attempt.

 

Avoid Predatory Lending Traps

When shopping for a car loan with bad credit, it’s important to avoid predatory lending practices that take advantage of borrowers. Here are some tips:

 

Watch out for absurdly high interest rates – Lenders that prey on those with poor credit often charge interest rates over 20% or even 30%. This makes the loan much more expensive in the long run. Try to find rates under 10% if possible.

 

Don’t take out longer term loans than you need – Some lenders will stretch out loan terms to 7 or 8 years just to make the monthly payment seem affordable. This results in paying thousands in extra interest. Keep your term under 5 years if you can.

 

Read all terms carefully before signingPredatory loans often bury extra fees and penalties in the fine print. Make sure you understand the full cost structure before committing.

 

Make sure monthly payments fit your budget – Just because you are approved for a payment doesn’t mean you can afford it long-term. Avoid loans with payments exceeding 10-15% of your monthly income.

 

Taking your time to find a fair loan can help you avoid financial traps. Don’t let bad credit force you into a punitive financing situation.

 

Know Your Budget And Shop Around

Before starting your search, determine a reasonable monthly budget for a car payment based on your current income and expenses. A car payment that exceeds 15-20% of your take-home pay will put too much strain on your finances.

Once you know your budget, research current interest rates and loan terms from a variety of lenders. Start with your bank or credit union to see what terms they can offer. Then get pre-approved from one or two dealerships so you can compare rates side-by-side.

Online lenders like Capital One, Upstart, and others can also provide rate quotes for people with bad credit. Compare all the options to find the most favorable loan within your budget.

Having pre-approvals and rate quotes from multiple sources gives you leverage to negotiate the best deal. Don’t settle for the first offer – take the time to shop and compare before committing.

 

Improve Your Credit Before Applying

One of the best things you can do when trying to secure a car loan with bad credit is to take steps to improve your credit score in the months leading up to your application. While you may be anxious to get a new vehicle right away, a little patience can pay off in the form of better loan terms and interest rates. Here are some tips for boosting your credit before applying:

 

Pay all bills on time – Payment history makes up a significant portion of your credit score. Simply making on-time payments on all your existing debts and obligations can gradually improve your score over time. Set up autopay or payment reminders to avoid missed payments.

 

Lower credit utilization – This measures how much of your available credit you are using. Try to keep balances low on credit cards and other revolving credit lines. Pay down debts to get your utilization as low as possible.

 

Fix any errors on your credit report – Mistakes happen, and errors on your report could be needlessly dragging down your score. Review all three major bureau reports and dispute any inaccurate information.

 

Be strategic with new credit inquiries – Each application for new credit results in a hard inquiry on your report. Limit applications in the months before your auto loan to avoid too many inquiries driving down your score. Space them out strategically.

 

With diligence and patience, you may be able to boost your credit high enough to qualify for a more affordable used car loan than you could have obtained originally. The effort can be well worth it.

 

Alternatives If You Can’t Get Approved

If your credit score or financial situation makes getting approved for traditional auto financing unlikely, you still have options to obtain transportation without having to drain your savings to buy a car outright.

One alternative to explore is lease-to-own programs offered by some used car dealers. These allow you to lease a used vehicle with the option to purchase it outright at the end of the lease term. Monthly payments are usually higher than a traditional lease or loan, but it gives you time to improve your credit score before having to secure financing to buy the car.

Another option is a secured auto loan using money you have in savings as collateral. The lender essentially loans against your savings deposit, which reduces their risk. While not ideal since it ties up your money, it can help you get approved for a loan even with poor credit.

You can also consider buying from a private seller instead of a dealer. Private sellers are often more flexible on price and financing terms since they don’t have to adhere to strict lending policies. However, you lose out on financing assistance and the security of a dealer warranty. Make sure you have the vehicle thoroughly inspected first.

With persistence and creativity, there are solutions to get a reliable vehicle even if you can’t qualify for traditional loans right away. Seek out alternative programs that work with your financial situation.

 

Know What Cars Are More Lender-Friendly

When searching for a vehicle with bad credit, it’s important to focus on models that lenders view as lower-risk. Certain cars tend to get approved more easily for subprime borrowers based on their affordability, reliability, and resale value.

Compact sedans and hatchbacks are often favored by lenders for bad credit buyers because they have lower sticker prices and more affordable loan terms. Models like the Honda Civic, Toyota Corolla, Kia Forte, and Hyundai Elantra offer practicality and fuel efficiency in an inexpensive package.

While larger SUVs and trucks work for some borrowers, they can also come with higher monthly payments that may stretch the budget too far. Compact crossovers like the Subaru Crosstrek, Hyundai Tucson, or Nissan Rogue Sport balance utility with a more accessible price point.

It’s wise to consider a vehicle’s depreciation rate when making your selection, as the model’s ability to retain value over time impacts the lender’s risk. Checking safety ratings is also important to avoid vehicles prone to high insurance costs.

Discussing your options with both the lender and dealer to get input on which models they prefer to finance can help narrow your search to vehicles that improve your odds of approval.

 

Work With Specialized Lenders

Many lenders cater specifically to bad credit borrowers and can offer better terms than traditional banks. These subprime lenders take on the added risk of lower credit scores in exchange for higher interest rates and fees. Developing relationships with specialized lenders focused on bad credit applicants can open up more options.

Subprime auto lenders have expertise in evaluating credit-challenged applications to balance risk and provide affordable loans. They may be more flexible on factors like income requirements, bankruptcy, and age of the vehicle. Many work directly with dealerships to promote special financing offers.

Online lenders like Driving With Steve, MyAutoLoan.com and AutoCreditExpress.com allow you to pre-qualify for financing from their network of subprime lenders after submitting just a soft credit check. This allows more choice in loan offers without accumulating hard inquiries on your report.

Using a specialized lender familiar with bad credit situations can simplify the process and potentially secure you better rates and terms. Be sure to still compare multiple subprime lenders, as significant differences can exist in the loans offered.

 

Improve Your Application

Getting approved for an auto loan with bad credit often requires careful preparation and planning in the months leading up to your application. Here are some tips to strengthen your loan application before applying:

 

Work on improving your credit in the months prior – Pay down balances, dispute errors, and limit new credit inquiries. Even small score improvements can yield better loan terms. Monitor your credit reports and FICO score so you understand where you stand.

 

Build your downpayment savings – Lenders favor larger down payments, often 10-20% of the purchase price. Save aggressively for a down payment in the year before buying to improve your chances.

 

Gather required income and employment proof – Lenders will require recent pay stubs, tax returns, and proof of any other income sources. Have these ready to expedite the application process.

 

Practice explaining past credit issues – Be prepared to explain late payments, collections, and other dings. Focus on what caused them, and how you’ve improved your situation since then. Honesty and personal accountability can help.

 

Understand the Full Costs

When shopping for a car loan with bad credit, it’s crucial to look beyond just the monthly payment amount. The loan terms, interest rate, and fees can vary significantly between lenders and add to the total cost. Here are some key factors to keep in mind:

 

Loan Term Length – Longer loan terms of 72-84 months spread the payments out but result in paying more interest over time. Opt for the shortest term you can afford.

Interest Rates – APRs over 10% are common for subprime borrowers. Compare rates between lenders carefully.

Fees – Lenders may charge origination fees, documentation fees, or prepayment penalties. Ask for full fee details.

Insurance – Full coverage insurance is required for any financed vehicle. Shop for quotes before buying.

Gas & Maintenance – Factor in the ongoing costs of fuel, oil changes, tires and repairs. High mileage vehicles cost more to operate.

 

Looking at the complete picture, not just the monthly payment, ensures you understand the total financial commitment required for the vehicle and loan terms.

 

Conclusion

Getting a car loan with bad credit in Canada can seem daunting, but it is possible with the right preparation and approach. By understanding which brands and models tend to get approved more readily for subprime borrowers, shopping for used vehicles to secure better terms, and improving your credit and financial profile ahead of applying, Canadians with less-than-ideal credit have a much better chance of being approved. Avoiding predatory lending traps, knowing your budget, and working with specialized lenders also helps secure an affordable loan. With diligent shopping and prudent financial planning, those with bad credit can find a reliable vehicle to get around. The most important thing is to spend time improving your credit score and financial health before applying, and not rush into the first loan you are offered without understanding the full costs involved. There are options out there for those willing to put in the work.

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Questions About The Best Cars For Bad Credit

The best cars you can buy in Canada with bad credit include reliable used models like the Toyota Corolla, Honda Civic, and Mazda3. These vehicles tend to hold their value well and require less maintenance, making them more affordable over the long run. You may also have success getting approved for financing on new compact cars like the Hyundai Elantra, Kia Forte, and Nissan Sentra.

In Canada, a credit score below 600 is generally considered bad or poor credit by most auto lenders. This will make it harder to qualify for financing and will result in higher interest rates. Scores in the mid-600s may still get approved but with less favorable loan terms. The best rates are usually reserved for scores over 700.

Some of the easiest cars to get financed for bad credit buyers in Canada are the Hyundai Accent, Kia Rio, Toyota Yaris, and Nissan Versa. These affordable subcompact cars appeal to lenders because they carry lower price tags and depreciate slower than other segments. Their lower ownership costs also make them more manageable.

Most lenders in Canada will require a higher down payment for buyers with poor credit, usually at least $2,000 – $3,000. Putting 10-20% down shows the lender you are financially committed and can lower the amount financed. Just make sure not to overextend your budget in the process.

The Hyundai Kona, Kia Seltos, Mazda CX-3, and Subaru Crosstrek are some of the most affordable new compact SUVs that bad credit buyers in Canada may qualify to finance. These models balance reliability, fuel economy, and utility making them attractive options even with higher rates.

Some top used car picks under $10,000 for shoppers with bad credit include the Honda Civic, Toyota Corolla, Mazda3, Subaru Impreza, and Ford Focus. Sticking with popular Japanese and domestic models in this price range can help secure an auto loan while getting a reliable daily driver.

Though limited, some attainable luxury vehicles for Canada drivers with bad credit seeking special finance loans are the Genesis G70, Volvo S60, BMW 3 Series, Mercedes CLA, and Audi A3. Just be mindful of higher borrowing costs and aim to put more money down to keep payments affordable.

Most major automakers work with special finance lenders to offer bad credit car loans in Canada. Kia and Hyundai for example have established “Second Chance Financing” programs to help subprime borrowers get approved. Individual dealerships may also have relationships with local lenders specializing in bad credit.

While rates vary widely, the average annual interest rate for bad credit auto loans from a dealership in Canada tends to fall between 10% and 25%. The higher your credit score within the bad credit range, the better rate you can qualify for from subprime lenders. Anything under 15% is considered decent.

When applying for bad credit auto financing in Canada, you’ll generally need your driver’s license, proof of income (recent pay stubs), proof of address, list of references, and possibly a sizable down payment. Having these items ready can demonstrate your ability to manage payments.

Yes, getting pre-approved before shopping for a used car with bad credit financing in Canada can be extremely helpful. It allows you to know your budget, compare multiple lender rates, negotiate better, and avoid unnecessary credit checks from dealers. This puts you in a stronger buying position.

Tips that can better your chances of securing a car loan with bad credit include paying down other debts to lower your debt-to-income ratio, getting a cosigner with good credit, putting more money down, shortening the loan term length, providing strong income and residency documentation, and applying with multiple lenders.

Some dealership groups with specialized bad credit financing departments in Canada include Good Fellow’s Auto Group, Ottawa Good Credit Auto Loans, Auto Credit Express, Car Hop Canada, and CreditRebuilder. These dealers understand the unique needs of subprime borrowers and have relationships with local finance companies.

Most lenders in Canada require a minimum credit score between 600 and 650 for a cosigner on a vehicle purchase, though scores of 700+ are ideal. Their income and debt levels also factor in. Having a cosigner with good credit can significantly expand your financing options.



Important steps to rebuilding your credit score after bankruptcy to buy a car in Canada include getting a secured credit card, becoming an authorized user on a family member’s card, paying all bills on time, keeping credit utilization low, avoiding applying for more new credit, and waiting at least 12 months before applying for auto financing.

Most experts recommend waiting at least 12-24 months after a consumer proposal to begin applying for a car loan in Canada. This allows some time for your credit to start recovering. Paying off the proposal early also helps accelerate the rebuilding process. The longer you wait, the better.

If denied a car loan with bad credit in Canada, some options include waiting 6 months before reapplying after taking steps to improve your credit, applying with other lenders or dealerships, asking family or friends to cosign, saving for a larger down payment, or considering alternative transportation options until you can get approved.



When shopping Buy Here Pay Here lots in Canada with bad credit, be cautious of extremely high-pressure sales tactics, large required down payments, exorbitant interest rates over 30%, very short maximum loan terms, missing vehicle history reports, outdated inspection certificates, mileage inconsistencies, and lack of a mileage/wear warranty on used cars.

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