Having bad credit doesn't mean you can't get a car loan in Canada.
While it may be more challenging, there are strategies and options available to help you secure financing for your next vehicle.
What Is Considered Bad Credit?
In Canada, credit scores range from 300 to 900. Generally:
Poor credit: 300-574
Fair credit: 575-659
Good credit: 660-724
Very good credit: 725-759
Excellent credit: 760-900
If your score falls below 660, you may be considered a higher-risk borrower, which can affect your loan terms and interest rates.
Build Better Credit with KOHO
KOHO's Credit Building offers a safe way to build credit without the risks of traditional credit cards or lenders, helping you achieve the same goal: a stronger credit history.
With KOHO, you could:
Have better credit in 4 months
Build credit without a credit card
See credit scores increase by an average of 31+ points in just 4 months¹.
KOHO reports your payments to Equifax on your behalf so you don't have to worry about it.
Steps to Get a Car Loan with Bad Credit
1. Check Your Credit Report
Before applying, review your credit report for errors or inaccuracies. Dispute any mistakes with Equifax or TransUnion, as correcting them could improve your score.
2. Set a Realistic Budget
Determine what you can actually afford in monthly payments. Don't forget to factor in insurance, maintenance, gas, and registration costs.
3. Save for a Larger Down Payment
A down payment of 10-20% shows lenders you're serious and reduces the amount you need to borrow, improving your approval chances.
4. Consider a Co-Signer
Someone with good credit who co-signs your loan can significantly improve your chances of approval and help you secure better interest rates.
5. Shop Around for Lenders
Don't settle for the first offer. Compare rates from banks, credit unions, online lenders, and dealership financing to find the best terms.
6. Look at Used Cars Instead
Used vehicles are less expensive, meaning you'll need a smaller loan. This makes approval easier and reduces your overall financial burden.
Improve Your Chances of Approval
Provide proof of stable income through pay stubs or employment letters
Show proof of residence with utility bills or lease agreements
Demonstrate bill payment history to show you're responsible with payments
Be honest on your application about your financial situation
Consider a less expensive vehicle to reduce the loan amount needed
Move Forward with Confidence
Getting a car loan with bad credit is challenging but entirely possible with the right approach.
Focus on what you can control: saving for a down payment, shopping around for the best rates, and being realistic about what you can afford.
Your past credit mistakes don't have to define your financial future.
¹Based on users with a starting score of 500 or less and who signed up for credit building in October 2024. Credit Building is not a credit repair tool and does not guarantee an improvement in credit score. Credit scores are based on complex models involving a variety of factors. Consistent on-time payments help improve scores and missed or late payments may cause credit scores to decrease. Outcomes may vary among users.