How to get a car loan with a low income

The average car payment in Canada is over $1,050 for a new car and almost $600 for a used car. That’s a lot of money for most of us, and if you only receive a low monthly income, you may find it difficult to qualify for a car loan.

The good news is that it’s still possible to find car loans for low income in Canada. Keep reading for tips on comparing low income car loans and maximizing your chances of getting approved.

Can I get a car loan with a low income?

Yes — but only from some lenders. Traditional lenders like banks tend to have higher income requirements among their eligibility criteria, so you’ll need to look for lenders with more lenient eligibility requirements.

However, before approving your application, the lender will still need to determine whether you can afford to repay the loan. They’ll consider your income, your employment history, your existing debts and other regular expenses before deciding whether to give you a loan.

Compare low income car loans

Related: Best car loans in Canada

How much do I need to earn to get approved for low income car loans?

It depends on the lender. As a general guide, many lenders will require you to earn at least $1,800 a month to qualify for a loan. But some lenders are willing to accept borrowers with income of $1,500 or even $1,200 a month, so it’s worth shopping around to find a lender who is willing to work with you.

What types of income do lenders accept?

The types of accepted income vary from one lender to the next. Some lenders, especially traditional providers like banks, will accept full-time employment income only. But others are also willing to accept part-time employment income, employment insurance and disability benefits such as ODSP and private disability.

A lender will typically list accepted income types on its website. Check this list before deciding whether or not to apply.

How to increase your chances of approval

There are a few simple factors that will work in your favour to help you qualify for a car loan with low income:

Improve your credit score

The better your credit score, the greater your chances of being approved. Disputing any inaccuracies in your credit report, paying down existing debts and taking other steps to improve your credit score will help you qualify for a loan.

Low debt-to-income ratio

Your debt-to-income ratio (DTI) is the percentage of your monthly debt payments out of your monthly gross income. If your DTI is under 40%, lenders are more likely to approve you.

No NSF transactions

A history of NSF fees on your bank account statement will suggest to the lender that you may struggle to make on-time payments. So if your past six months of transactions don’t show any NSF fees, your chances of getting approved will increase.

Steady income and employment

If you’ve held down the same job and received consistent income for the past few years, a lender will see you as a safer borrowing prospect than someone who has only been in their job for a few months.

Larger down payment

The more money you have saved for a down payment, the less you’ll need to borrow. Having a larger down payment also shows the lender that you’re financially disciplined enough to save money.

Include all your income

Check the lender’s eligibility criteria to find out what types of income they accept. If they accept government benefits and other types of income, be sure to include any income you receive in your application.

Apply with a co-signer

Applying with a co-signer who has excellent credit will help you qualify for a larger loan amount and a better interest rate. It’ll also boost your chances of getting approved, but the co-signer will need to be willing to take on the risk of repaying the loan if you can’t keep up with payments.

Lower your budget

Another simple way to increase your chances of getting low income car loans is to simply buy a cheaper car. It may mean settling for a car that isn’t 100% perfect for your needs, but it’ll help you stay on the road.

Are there low income bad credit car loans?

Yes, you can qualify for low income bad credit car loans in Canada. These aren’t available from traditional lenders but rather specialist lenders who work with subprime borrowers.

These lenders will look past your credit history when assessing your loan application. They will instead consider factors such as your income, how steady your employment is and your existing debt obligations.

Your income will still need to be sufficient to cover your monthly payments. The other factor to be aware of with bad credit car loans is high interest rates and fees — make sure you’re certain you can afford your repayments before you apply.

Can I buy a car while on welfare?

Yes, it’s possible to qualify for a car loan while on welfare. The lender will need to assess whether you receive sufficient income to afford your monthly loan payments. However, not all lenders will accept government benefits as a form of income, so you’ll need to check each lender’s eligibility criteria before you apply.

Can I buy a car while receiving ODSP?

Yes, you can qualify for auto financing while receiving income support under the Ontario Disability Support Program (ODSP). However, not all lenders will accept disability benefits as a form of income, so you’ll need to shop around to find the right lender. Taking steps to improve your credit score and save a bigger down payment can also increase your chances of getting approved.

Bottom line

Low income doesn’t have to stop you from getting a car loan. But taking simple steps to improve your credit score or save a larger down payment can increase your chances of getting approved. Compare car loans from a range of lenders before deciding where to apply.

Frequently asked questions

• Are there government car loans for low income?

  No, there are no government-run low income car loan programs in Canada.

• Are there car loan programs for low income?

  No, there are no government car loan programs for people with low income in Canada. However, there are many auto lenders who are willing to work with low income borrowers — you'll just need to demonstrate that the income you receive will be sufficient for you to afford your monthly payments.

• What is the lowest amount to finance a car?

  The lowest amount to finance a car is $500. You have a better chance of getting approved with a low income if you ask to borrow smaller loan amounts.

• What is the easiest car company to get financing?

  The easiest company to get financing from, especially when you have a low income, is a car loan search platform that has a solid network of dealers and lenders. This way, they can match you with a lender based on your financial situation. Learn more about car loan search platforms.

• Where can I get a car loan with good credit and a low income?

  If you have a good credit score and a low income, you could try applying to banks or credit unions first. They may still be able to approve you if your DTI is below 40%. If your DTI is over 40%, try applying to car loan search platforms like CarsFast and Loans Canada.