The term “bad credit” can mean many different things. Banks are able to review your credit and determine whether to approve a car loan. Banks consider the credit history and score as well as overall ratio of debt to income. For example, someone who makes $100,000 a year with a large amount of credit out will also be considered “bad credit”, or credit risk. There are, however, credit services that serve those with a poor credit history.
Buying from Dealer
If you go to any big dealer in Toronto to get financing, you can get better rate than someone who is trying to find financing on his own. Dealers want to sell vehicles, and larger dealers use different banks. Dealerships maintain positive relationships with banks and may be able to appeal for favorable financing or a structure on your behalf even if you have not got it approved elsewhere. Contact a dealer to let someone know about your credit situation, and the dealer will let you know if it can get you approved or not.
Buy-here Pay-here Lots
For those who cannot find approval at traditional credit institution in Toronto, many “buy-here, pay-here” is a good bet. The company itself provides this type of funding and does not include traditional approval methods. You, however, have to provide a large down payment, and you will have a high interest rate or have to pay more for a car than you would normally through a dealer.
Rates and negotiation
Wherever you get approval, you will most likely pay a high interest rate. Rates can go in the high 20 percent range, which will cost a lot over time. Look under “Resources” on contract page to access a car loan calculator to determine the difference paid over time based on rates. For those who cannot get approval through the traditional broker or financing methods of the local bank, you will typically lose your bargaining power.
A co-signer with a solid credit history, high credit rating and a low debt-to-income ratio may be able to help solve your problems. Banks will approve the approved rate of your co-signer, even if you are on the loan. Beyond a fair rate, you will also have a lower monthly payment and may not have to provide money for a down payment.
When you are trying to get financing with bad credit, wait to be asked to put a lot of down payment to get an approval. This is due (LTV) loan-to-value ratio. If you can find an approval with your credit rating, the bank will require equity in your vehicle at the time the loan is granted to you in the event of default. You can be approved with an LTV ratio as low as 60 percent, which means you will have to put down all taxes and fees in addition to cash towards the car. Expect this amount to be thousands of dollars.
There are national banks in Canada that lend to people who have bad credit. You can do a search for “bad credit auto loans Toronto” online or apply online and get a free quote from 15 credit lenders.
If you are able to get a loan for your car but unhappy with the payment or the interest rate, you can refinance your vehicle at a later date. You can improve your credit by making timely payments and taking care of the issues on your credit report if possible. When your credit improves, you can refinance your vehicle at a lower rate.
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