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Can I get approved for a car loan with a bad credit score?

Bad credit. It’s a term that strikes fear in the hearts of anyone who cares about their personal finances.

That’s because bad credit means lenders view you as someone who is a higher risk to lend money to. It can impact everything from whether you’ll be approved for a credit card to the interest rate you’ll be paying on a car loan.

The latter reason is probably why you’re reading this. If you have bad credit, it’s important to understand how it will affect your car loan — from the rate you have to whether you can even qualify in the first place.

Let’s break down everything you need to know about bad credit and car loans and answer the question in the headline — can you get approved with bad credit?


What’s a bad credit score?


First, you have to understand the credit system to fully understand what bad credit means.

In Canada, two credit rating bureaus are tasked with keeping track of credit scores — TransUnion Canada and Equifax Canada. They keep files on consumers and assign them a rating based on how well they’re managing their finances.

If you’ve been paying off your credit card every month for the past 10 years and have never missed a payment, you’ll probably have a good credit score (provided you’ve also kept up on all your other debt obligations). If you’ve repeatedly missed payments — or worse, defaulted — the lender you didn’t pay is going to contact the credit bureaus to let them know you’re not reliable. Your credit score will go down as a result.

In Canada, credit scores start at 300 and go all the way up to 900. While what is considered bad might differ between lenders, it’s generally accepted that being below 575 is a bad credit score.


So, I have a bad credit score. Can I get a loan?


If your credit score is below 575, a lender will want to make sure you can take on a loan and actually be able to pay it back.

That means you need to go the extra mile to prove you’re capable of doing that.

One of the most important parts of your application will be the part where you state your employment and income. With bad credit, you will definitely have to have a job with reliable income. Lenders will also want to see that you make a certain amount of money to qualify. When we reached out to several partners, we were told that this amount can vary from $1,600 a month to $2,000 a month gross (that’s before taxes).

Lenders will be interested in seeing if you carry other debts as well. For instance, if you have a mortgage that’s already eating up half your monthly income, they’ll be less likely to give you a loan.

However, if you don’t, and you meet the minimum income requirements mentioned above, your chances of being approved for a loan are good.

If you do qualify for a loan and make regular payments, you may find that your credit score goes up over time. If that’s the case, it might be worth exploring whether refinancing your loan makes sense.

Once you get your credit score above 575, it’ll be considered “good” and you’ll potentially be eligible for a better interest rate. That can significantly lower your monthly payment — at which point it might make sense to refinance your loan, even if you’ll pay a penalty to do so.

Either way, the most important thing is that you qualifying. Knowing the requirements can help you take the steps needed to be eligible for a car loan.