Getting a car loan with bad credit and no cosigner

Car loans for bad credit with no cosigner are available in Canada but often come with higher interest rates. Find out where you can apply here and actions you can take to increase your chances of approval.

Can I get a car loan with bad credit and no cosigner?

Yes. If you have a credit score below 560, you can still get a car loan with bad credit and no cosigner. There are online lenders and dealerships that will work with borrowers like you. Lenders prefer borrowers who are low risk, so if you don’t have good credit or a cosigner, other aspects of your application need to be strong. Factors like having a steady income and a sizeable down payment signal to lenders that you can repay a loan.

Dive deeper: Best bad credit auto loans

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Related: Best car loans in Canada

How to get a car loan with poor credit and no cosigner

To get a car loan with bad credit and no cosigner, consider the following actions:

1. Get your credit report

Order your credit report for free from credit bureaus Equifax or TransUnion. An physical copy from Equifax takes 5-10 days to arrive.

Check for any errors and report them to the bureaus so you can improve your credit score. To file a dispute, mail or upload your documents and wait for an investigation. Your dispute can be processed within 30 days, according to Equifax.

2. Offer a down payment

Offering a down payment is a strong signal to the lender, and the higher the amount the better. Having a down payment means you’ll need to borrow less, which makes you less of a risk to the lender.

If you can, offer 10% to 20% of the purchase price, but if this isn’t possible, a few hundred dollars is better than zero down payment.

3. Demonstrate steady income

Lenders want to see that a borrower has been employed for at least 3-6 months. Minimum income varies among lenders. Some have a minimum income of $1,500 per month, some require $1,600 and others require $1,800 or more.

Full-time employment is a stronger signal than part-time, but there are lenders that can consider part-time work as long as you meet their income requirements.

4. Know how much you can afford

Lenders will calculate how much you can borrow, but before applying anywhere, have a good idea of how much car you can afford. The general rule is to not spend more than 10-15% of your take-home monthly pay on car payments, but be sure to consider any variables that are unique to your situation. Read up on the cost of car ownership, which includes fuel, maintenance, licensing and registration and insurance.

5. Find the least expensive used car

The lower the purchase price, the less you need to borrow. Visit sites like Kijiji, CarGurus, AutoTrader and Facebook Marketplace to compare prices and search for the best deals on used cars. Check out our full guide to the best sites to buy a used car here, which includes information on:

6. Research interest rates

Unfortunately, borrowers with bad credit will face higher rates on their car loan than those with good credit, because lenders see them as higher risk. These car loans are expensive with interest rates in the double digits, so you may wish to compare car loan interest rates in Canada and get car loan pre-approval to get an idea of the best rates you can qualify for.

7. Watch out for long loan terms

As a general rule, try to limit your car loan term to 4 years or less. Longer loan terms give you lower monthly payments and a little financial breathing room, but you pay more interest over the life of the loan. It can get especially costly for bad credit car loans with no cosigner.

Use the car loan payment calculator below to find out how much you might spend per month based on the loan amount, loan term (in years) and interest rate. Your goal should be to get the shortest loan term possible with monthly payments that you can manage.

What credit score is needed to buy a car without a cosigner?

A borrower with a good credit score above 660 can take out a car loan without a cosigner from a bank or credit union. If your credit is below 660 or even 560 (which is considered “bad” for credit scores), some alternative lenders online could approve you even without a cosigner. However, expect steeper interest rates.

No-cosigner car loans with no credit

If you don’t have credit or a cosigner, you may face the same limited options as a buyer with bad credit. This is because a lender can’t judge your ability to pay back the loan, making you riskier than someone with credit history.

However, there are still car loan options available to borrowers with no credit. It can help to have a big down payment and steady employment if you want to go through a bank or credit union. Otherwise, you might have better luck with an online lender or dealership.

What are the requirements to get a car loan with bad credit and no cosigner?

While requirements for a car loan with bad credit and no cosigner vary by lender, you’ll likely have a better chance of getting approved if you meet the following criteria:

• Steady source of income
• Large down payment saved up
• Fair credit
• Full coverage car insurance
• Canadian citizen or permanent resident
• Be at least the age of majority in your province/territory (18 or 19 years old)

5 ways to increase your chances of approval for bad credit, no cosigner car loans

When you’re looking for a good deal on a car loan with bad credit and no cosigner, keep these tips in mind.

• Build your credit score. Taking the time to build your credit score before applying for a car loan will help you qualify for a lower rate and better terms. You can build your score by spending carefully with credit cards and making timely repayments on other forms of debt.
• Save up for a higher down payment. The bigger your down payment, the less you’ll need to borrow. This means you won’t need to finance as much of your vehicle, making you less risky to a potential lender.
• Apply for a smaller car loan. If you can’t get approved for a loan to buy your car of choice, research comparable vehicles that cost less. Prioritize the features you need the most, and find out which models are insurance-friendly (insurance companies might charge more for models that are frequently stolen or typically chosen by risky drivers).
• Pay down your current debts. If your debt-to-income (DTI) ratio is too high, a lender will likely consider your other financial obligations as a risk. Because of this, you may want to focus on paying off your debts and improving your credit utilization ratio before applying.
• Compare multiple lenders. Understanding your options is critical when it comes to getting a competitive rate, even without a cosigner. Most credit bureaus count multiple car loan applications within a short time period as a single hard pull on your report. Use this to your advantage and compare as many lenders as possible before making a final decision.

Bottom line

No matter your credit score, you can find a car loan provider without needing someone to vouch for you. Banks and credit unions often offer low rates to borrowers with good to excellent credit. But if you’re hoping to get a car loan with bad credit and no cosigner, consider online lenders and dealerships first. Learn more about the car-buying process in our guide to car loans.

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Frequently asked questions

• Can I get a car loan without a cosigner if I'm 18?

  Maybe. There are lenders that accept 18-year-old borrowers without a cosigner. However, you may have to settle for less-than-optimal rates due to your limited credit history.

• Will I be able to get a car loan without a cosigner as a college or university student?

  Maybe. There are lenders that offer car loans specifically to students—even if you don't have a cosigner. But like any other borrower, you'll need to prove you have a steady source of income and can afford to make repayments.

• Can I get a car loan without a cosigner if I'm not a Canadian citizen?

  Maybe, though it will likely depend on whether you're a Canadian resident. In most cases, you'll need to have a credit history, down payment and a Social Insurance Number (SIN) to qualify. Otherwise, you may find that a lender is unwilling or unable to approve your application without a cosigner who's a Canadian citizen.

• Will I need a cosigner to refinance my car loan?

  It depends on your credit history and financial situation. If you have good to excellent credit—or at least have a history of on-time loan repayments—you may not need a cosigner to refinance your car loan.

  But if you have a low credit score or income, refinancing a car loan without a cosigner may be more difficult. In this case, you may want to increase your credit score and income before applying.

• What are some examples of bad credit auto loan providers?

  Examples include CarsFast, Loans Canada, Rifco and Iceberg Finance.