If you're a first-time car buyer with little or no credit in Canada, you may find it challenging to get a car loan. However, having little credit history doesn’t completely mean you can’t get auto financing. Most Canadians tend to have little or blank credit reports. Here are a few options for those looking to obtain an auto loan with low credit in Canada:
Evaluate Your Finances
Before you think of applying for a car loan, evaluate your finances to identify how much you can allocate toward monthly car payments and still be able to cover other expenses, such as upkeep, insurance, and rent. By evaluating your finances, you can decide whether to make a down payment to improve your chances of getting the loan.
Use a Co-signer
If you’re looking to buy a new vehicle by obtaining a loan but have no credit score, consider using a co-signer. This involves asking a friend or family member with good credit to vouch for you to get an auto loan. A co-signer can give the lender confidence because they can recover the loan from the co-signer in case you default.
Check Auto Loan Rates
Take advantage of car loan calculators to estimate loan payments and interest rates. Because you have no credit history doesn’t mean your only financing option is poor credit car dealerships. These dealerships can be costly, and it’s thus better to do your research on various credit unions and local banks to find a lender that can offer you better loan terms.
Establish Credit
If you’re looking to buy a new or used car in Canada, consider building your credit profile early enough. Most credit unions or bureaus, such as Equifax and Transunion, create credit reports based on two-year activity. So, the earlier you begin establishing credit, the better. You can opt to get a credit card and make consistent monthly payments. Be sure to pay on time to improve your credit score.
Secure a Consistent Paycheck
While loan providers may agree to offer you a car loan with low credit, they may not be so willing if you have no consistent monthly income. Lenders tend to check other factors other than your credit history to decide on whether to offer you a loan. This can include your living history, employment history, and driving history. So, having a consistent paycheck can ensure you pay your rent, renew your driver’s license and make other monthly payments on time.
Pay in Cash
If you have enough cash, you can opt to finance your new car without obtaining credit. This helps reduce the stress of dealing with credit bureaus to get your loan pre-approved.
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