Bad Credit Car Loans Canada: All You Need to Know

Either if you are new to Canada, you had debt problems during your life or made mistakes while managing your finances, your Credit Score will affect the way you acquire new loans. Those I just mentioned are sample situations that you can find when looking for a vehicle, a house mortgage or just money borrowing by a financial institution. On the following article, I will describe the factors that will affect a new vehicle acquisition when your credit score is low, also known as "bad credit car loans Canada."

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Right Now, Know Your Credit Score

This is vital. It makes no sense to go with this if you don't know exactly what your credit score is. Our partner agency, Borrowell Canada, offers a FREE Equifax Credit Score in only 2 minutes.

Additionally, consider a program for boosting up your credit score. Another partner of us, Borrowell Canada, has multiple Credit Boost Tips carefully crafted and conceived for achieving this purpose.

Why is Your Credit Score Important When Buying a Car?

Except for the rare case that you are buying a brand new car in Cash, either on a Lease or Financing it, you acquire a vehicle with a value of, let's say, 20,000CAD. Doing so you "promise" and sign a contract stating that you will pay for it "little by little."

During the signing of the agreement, the Dealer (and more specifically, the Financist of the Dealer) needs to guarantee that the value borrowed on the vehicle, will be paid accordingly. Here is where your Credit Score jumps into the scene: the bank loaning the money wants to know if the person acquiring the car, is responsible enough to do so and setup an agreement that benefits both sides.

Your Credit History "Describes" How You "Behave"

A person's Credit History reflects how well this person can manage responsibilities and debts regarding the use of value, in this case, money. The better you manage your finances, the better credit history you will have.

On the exceptional case that you are new to Canada, which means you have no "financial" management experience on this territory, then you start to build your score from scratch. On a later part of this article I will describe what first steps you should take:

It is just a number that ranges from 300 to 850:

Your Credit Score is higher (close to 850) if you: 

  • Pay your bills in time (usually before 30 days or the specified due date)
  • Manage your credit cards responsibly (minimum payment on time, and controlled balance)
  • Have a Fair debt reduction ratio compared to your income. (you use between a 3%-20% minimum of your income to pay debts, and these gradually reduce)

and, on the other hand, your Credit Score is lower (close to 300) if you:

  • Don't pay on time. (i.e., a more than 30 days late payment has a negative effect, but even worst if it reaches more than 60 or 90 days)
  • Have multiple credit cards that increase your debt at an uncontrolled rate or with unpaid statements.
  • Your debt grows every month.

Bad Credit Car Loans Canada: 100% Doable

And with this, I mean that yes, you will get the loan you need, but not under "ideal" conditions. Banks bend the line that defines their requirements to lend money. It means that they are willing to take the risk, but with some conditions. If you need to get a "bad credit car loan," you need to understand that your solution will be based on either a Bigger Downpayment or a Higher Interest Rate.

For clarifying it, I will mention a couple of examples of situations you may find:

Example #1: Down payment

It is John's first car purchase, and this is his situation:

  • It is the first time John is doing a lease/finance
  • John's credit score is lower than 700
  • John arrived in Canada less than 18 months ago.

Although it may be the first time he is doing so, the bank asks John to put a 4,800CAD down first (the 40% of the lease total) for acquiring a 2017 Honda Civic Manual and the rest remains the same. The payment will be reduced from 200CAD/month for 60 months to only 120 with no additional interest.

Example #2: Higher Interest Rate

Let's assume now that John doesn't have that amount of money to put up front. Then the alternative offered by the bank is to go, instead of with the 2,99% Offered by the manufacturer for "Good Credit clients," to go with a 6,99%. 

This will mean that each monthly payment will be higher, but no money will be needed as down payment and 

You are New to Canada, and You May Need A Car

Hundreds of thousands of people move to Canada every year. New life, new weather, new jobs and new Credit Score.

At the very beginning, it is tough to build a solid Credit History so, the following list of details will help you to boost your Credit Score and do it with confidence.

  • Get a Credit Card MINIMUM 1,000CAD Use it every month up to a 50% and pay it in full before the end of each statement.
  • Progressively increase your credit limit instead of acquiring new cards.
  • Pay all your bills in time. If you have a family, try to concentrate as many bills on your name as possible.
  • Setup automated payments to avoid mistakes that may affect your deadline dates.
  • Do not run multiple Credit Checks. It usually affects your score.
  • Be responsible with your finances.

Doing so will work either if you are new or to restore and raise your score if you were in a bad situation, but still, always remember that you have alternatives to acquire a vehicle even if your Credit Score is low.

Study the Options: It is FREE and Takes only two mins

The most important thing is that you explore the market. With CanadaDrives, it doesn't matter if your score is low, they are experts getting you what you need at an affordable price and setup. Just feel free to submit the form, and they will come back to you:

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About the author

Jorge Diaz is a passionate car lover, winter driver & Software Engineer. For the last 10 years, he has built Online Solutions used by more than 5,000 companies across the globe. He founded LeaseCosts in 2016 with the purpose of simplifying and helping Canadians to better understand the complex market of car leasing in Canada. You can connect with him at

Jorge is also the author of Car Leasing Done Right: A Canadian Guide for Understanding & Optimizing Vehicle Leasing Costs, released on Nov. 5th, 2021. It is available at