Car Loan's That Repairs Bad Credit

Having a vehicle can simplify everyday tasks, and securing a loan to buy a car can feel liberating. When you have bad credit, your best chance of financing a vehicle usually involves a car loan for people with poor credit. When managed responsibly, bad credit car loans can be a great way to improve your credit score. Here’s how to help rather than hurt your credit score with your car loan. 

Do I Qualify For a Bad Credit Car Loan?

Most bad credit lenders cater to individuals who have a low credit score, little or no credit history, have a history of missed payments, and don’t qualify for a traditional car loan. However, they do expect borrowers to have proof of a minimum income, and many lenders want to see that you have worked at your place of employment for several months.

Car Loans Can Hurt or Help Your Credit

What Is a Credit Rating?

Most car loans taken out in Canada are reported to the credit bureaus, Equifax and TransUnion. They assess your financial history and rate you according to your activity. Credit bureau Equifax considers a rating of 660 as good and 900 as excellent. Scores that fall between 300 and 600 are rated as poor. 

How To Build a Good Credit Score

If you want to build a good credit, score you need to:

• Pay your bills on time 

• Remove any outstanding debt

• Establish your credit history

If you have credit cards with a zero balance that you are not currently using, keep these accounts open as they contribute to establishing your credit history. Traditional lenders will view you favourably and you may qualify for loans with lower interest rates and better loan terms. The main benefit to you as a consumer is that you can borrow money at a lower cost. 

When you have a bad credit score, you won’t qualify for any loan amount from the bank, but if you need to buy a car, you have the option of applying for a bad credit auto loan. 

Late Payments Will Hurt Your Credit 

Whether you get a loan from a traditional lender or a bad credit loan, late payments and missed payments will hurt your credit score. These lapses are also listed in your credit report and available for lenders to view when you apply for a loan. To build up your rating, it is important to consistently pay your bills in full and on time. 

Make Sure Your Loans Are Reported To Credit Institutions

If you are looking to rebuild your credit, it’s important to make sure your loan is reported to credit institutions. Most lenders will report your credit information to Canada's two main credit bureaus - Equifax and TransUnion. In the case of in-house leasing, for example, there is no reporting of payments, so a perfect payment record will not help your credit score. 

Most car dealerships will only take this route when you need to buy a car, but external lenders won’t offer credit. This is a way to get you into a car, but you won’t benefit from credit reporting.

Tips To Ensure You Can Make Your Payments

Once you have been approved for a loan, you want to make sure you can make your monthly payments for the duration of your loan term. 

Budget Appropriately

When deciding which car you want to buy, it is important to properly consider what you can afford. Figure out your monthly income and expenses to see how much you can contribute towards a car. Keep in mind things like gas, car insurance, and routine car maintenance. These all add up over time, and you also need to keep some wiggle room in your budget for unexpected costs. Use our convenient car loan calculator to determine your maximum budget for a car loan. 

Choose a Less Expensive Car

When you are approved for a bad credit auto loan, the downside is that you will have to pay a higher interest rate. This is because lenders view you as carrying more risk, so you have to pay more for your credit as a result.

Therefore, the more expensive the car that you buy, the more interest you will have to pay. Let's look at an example to illustrate this.

You buy a car for $12,000 with an interest rate of 15% over five years. Your monthly payment is approximately $285, with total interest payments of $5130.

In scenario 2, you buy a car for $24,000 with an interest rate of 15% paid over five years. In this instance, your total monthly payment is $570, and your total interest payments are double at approximately $10,250. 

If your priority is to improve your credit, you’ll benefit more by purchasing a less expensive car that is affordable, so you can make your payments on time and build up your credit rating. 

Shop Around For Good Payment Terms

All lenders offer slightly different interest rates, so it is worth shopping around to see what you can get. 

Let’s look at that $24,000 loan again and see what happens if the interest rate drops by two percentage points. Firstly, your monthly payments would drop by $24 to $546, and the total interest you save is approximately $1486. It is worth shopping around, so go to a dealership that works with several lenders so you can get the best rate.

Save Up For A Downpayment

Putting a downpayment on your loan is a great way to reduce your monthly payments and also lower your interest costs. If we add a downpayment of $5000 toward the purchase of the $24,000 car with a 15% interest rate over five years, your monthly payment is about $452, and you save in interest costs by about $2130.

Ask About Extra Payments

Some lenders will allow you to pay down a certain amount of your debt in addition to the monthly payments. If you are able to make extra payments, you will be able to get out of debt quicker. Another option is to choose weekly payments instead of monthly payments to take advantage of the two months of the year that have five weeks instead of four.  

Make Your Payments On Time

It is crucial to make your payments on time if you are looking to improve your credit score. Missed or late payments will be logged in your credit history, reducing your chances of improving your credit score.

Communicate With Your Lender

If you are having difficulty making your payments, the worst thing you can do is to ignore the lender. Keep in touch! If you can’t make a payment for any reason, contact them to find out your repayment options. 

Defaulting on your payment may result in your car being repossessed, and nobody really wants this. It is in your lending company’s interest to help you resolve your problem, so contact them before the payment date. That way, you can find out the repayment options, and your credit score won’t take a dive. 

Keep The Goal In Mind

Throughout this process, it’s important to remember why you are doing this - a good credit score will allow you to borrow credit at a lower price.

It’s not ideal to take out a bad credit car loan due to the higher interest rates, but if your aim is to improve your credit score, these loans are the perfect way to accomplish this.

Let’s look at that $24,000 car loan and imagine you now have a good credit score that gives you the current prime rate of 6.7%. With a term of five years, your monthly payment would be $471, and the total interest on that loan is approximately $4310. This is a huge contrast to the $10,250 you have to pay on the 15% interest loan. 

Get A Bad Credit Car Loan In Edmonton, AB

At Insta Auto Solutions, our professional team will work with you to get you into a car that you feel good driving and that works within your budget. We have a large inventory of cars and trucks to choose from, so drop by one of our dealerships today and find your next ride! 

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Get A Bad Credit Car Loan In Edmonton, AB

At Insta Auto Solutions, our professional team will work with you to get you into a car that you feel good driving and that works within your budget. We have a large inventory of cars and trucks to choose from, so drop by one of our dealerships today and find your next ride! 

Find your next vehicle, secure a loan, and build up your credit with Insta Auto Solutions. Contact us today! We are happy to help you! 

Insta Auto Solutions Offers a variety of conveniently located dealerships including but not limited to Edmonton, St Albert, Acheson with new stores opening in Kelowna, Saskatoon, and Manitoba