For many people, owning a car is more than a luxury, it’s a lifeline for getting to work, managing family life, and simply staying connected. But if your credit score is less than ideal, the path to vehicle ownership can quickly become stressful and uncertain. You may worry about high interest rates, loan rejections, or being forced into terms that feel out of your control.
The good news? You’re not alone , and you’re not without options. According to TransUnion, nearly 1 in 5 Canadians have a credit score below 600, considered “poor” by most lenders. That means thousands of Ontarians are navigating the same challenge: how to secure a car loan despite financial setbacks in their past.
This guide will show you exactly how to move forward. You’ll learn what lenders actually look at, how to strengthen your application, which types of financing to consider, and how to avoid common traps that leave borrowers worse off.
What Is Considered “Bad Credit” in Ontario?
In Canada, credit scores range from 300 to 900. While there’s no universal line in the sand, most lenders in Ontario consider anything below 660 to be “subprime” or “bad credit.” The further you drop below that threshold, the harder it becomes to qualify for traditional loans, and the more expensive borrowing tends to get.
Credit scores aren’t just random numbers. They’re calculated based on five key factors: your payment history, credit utilization (how much of your available credit you’re using), credit history length, credit mix, and recent inquiries. Of those, payment history carries the most weight, meaning even a few missed or late payments can cause your score to fall dramatically.
It’s important to note that your credit score isn’t the only thing lenders consider. Many will also look at your income stability, employment history, debt-to-income ratio, and even how much you’re putting down. So while a low score may raise red flags, it doesn’t mean you’re out of the running, especially if other aspects of your financial profile are strong.
How Bad Credit Affects Your Car Loan Options
When your credit score falls below 660, it signals to lenders that you may be a higher-risk borrower. The result? You’re likely to face more limited financing options, shorter loan terms, and significantly higher interest rates, sometimes double or even triple what someone with good credit would pay.
For example, while someone with strong credit might secure an auto loan at 6% interest or less, subprime borrowers in Ontario often see rates starting at 12.9% and climbing to as high as 29.99% depending on the lender and other risk factors. That difference can translate into thousands of dollars over the life of the loan. If you’re financing a $20,000 car, the total cost with bad credit could be substantially higher due to interest alone.
On top of that, lenders may require you to make a larger down payment, offer shorter repayment terms (which raises your monthly payments), or request a co-signer to reduce their risk. Some may even limit the type or age of the vehicle you’re allowed to finance. While these barriers can feel frustrating, knowing what to expect puts you in a better position to negotiate or explore more flexible lending options.
Step-by-Step: How to Improve Your Chances of Getting Approved
- Check and Understand Your Credit Report
Before applying for a loan, it’s essential to know where you stand. You can request a free credit report from Equifax Canada or TransUnion Canada, and you should. Look for errors like incorrect balances, outdated accounts, or late payments that were actually paid on time. Fixing even one mistake could give your score a small but valuable boost. This step also gives you a clearer idea of what lenders will see, so there are no surprises.
- Build a Budget That Reflects Your Real Life
Lenders want to know you can make consistent payments, and the best way to show that is by proving you’ve already thought it through. Use a car loan calculator to estimate monthly payments at different interest rates and loan lengths. Don’t forget to include insurance, maintenance, and fuel in your calculations. If you’re applying with a lower credit score, it’s wise to aim well below your maximum budget to avoid overextending yourself.
- Save for a Down Payment
A larger down payment reduces the amount you need to borrow, which lowers the lender’s risk. It also shows financial responsibility — especially important when your credit history is less than perfect. If you can put down 10–20% of the car’s value, you may qualify for better terms. According to Finder Canada, down payments are one of the top factors that lenders consider when working with subprime borrowers.
- Consider a Co-Signer
If you have a family member or close friend with good credit, they might be able to co-sign your loan. This gives lenders more confidence in the loan’s security. But it’s a big ask, your co-signer becomes legally responsible if you miss payments. Only go this route if both parties are confident in your ability to keep up with the loan.
- Compare Lenders, and Don’t Just Go with the First Offer
Not all lenders treat bad credit the same way. Some banks and credit unions have rigid rules, while others (especially online lenders or non-traditional financing platforms) may take a more holistic view of your financial situation. They might weigh income and employment stability more heavily than your credit score. Take the time to compare offers, and get pre-qualified if possible, to see real interest rates without affecting your credit score.
- Keep Your Debt-to-Income Ratio Low
Lenders often look at your debt-to-income (DTI) ratio, that’s how much of your monthly income goes toward paying debts. Even if your credit score is low, a manageable DTI can reassure lenders you’re capable of handling another payment. Try to pay down existing debts before applying for a loan.
- Avoid Applying to Multiple Lenders All at Once
Each loan application can trigger a hard inquiry on your credit report, which may temporarily lower your score. Space out your applications over a few weeks, so they’re treated as one inquiry by credit bureaus. This protects your credit score from unnecessary dips during your loan search.
- Maintain Steady Employment and Income
Lenders like stability. Being able to show consistent employment, ideally for at least six months to a year, can improve your chances. If you recently changed jobs, gather proof of steady income such as pay stubs or bank statements to submit with your application.
- Consider Credit-Building Products Before Applying
If you have time, using credit-building tools like secured credit cards or small personal loans (and paying them off on time) can help raise your score. Even a modest improvement may lower your interest rate or expand lender options.
Types of Lenders for Bad Credit Car Loans in Ontario
When you have bad credit, not every lender will say yes. But understanding the different types of lenders available in Ontario can help you target those most likely to work with your situation.
- Traditional banks typically offer the best interest rates but have stricter credit requirements. They usually expect a credit score above 660, so if your score is lower, approval chances are slim. However, if you have a strong income or a co-signer, it’s still worth checking with your bank.
- Credit unions are often more flexible than big banks. Because they are member-owned, they sometimes take a more personal approach and consider factors like steady employment and your overall financial health, not just your credit score. Many Ontarians find credit unions a friendly option when rebuilding credit.
- Online financing platforms have grown rapidly in Canada. Companies like LoanConnect and Canada Drives specialize in connecting borrowers with lenders who approve bad credit car loans. They often streamline the application process and provide pre-approval without affecting your credit score, giving you a clearer picture of your options upfront.
- Some dealerships offer in-house financing tailored for bad credit buyers, but it’s important to be cautious. These loans can come with higher interest rates and hidden fees. Always read the fine print and compare with other lenders before committing.
Note: Watch out for predatory lenders who target borrowers with bad credit by offering loans at exorbitant interest rates and unfavorable terms. These can trap you in cycles of debt, making it harder to improve your financial standing.
Understanding the Fine Print: What to Watch For in Loan Terms
- Interest Rate vs. APR: Interest rate shows borrowing cost; APR includes fees. A low rate with high APR means hidden costs.
- Loan Term Length: Shorter terms = higher monthly payments but less total interest; longer terms lower payments but increase total cost.
- Prepayment Penalties: Some lenders charge fees if you pay off early—know before you commit.
- Hidden Fees: Watch for origination or documentation fees that add to your loan amount.
- Add-Ons: Be cautious with extended warranties or insurance add-ons—only accept if clearly valuable and affordable.
Conclusion
Getting a car loan with bad credit in Ontario may feel challenging, but it’s far from impossible. By understanding what lenders look for, preparing your finances thoughtfully, and choosing the right lender, you can secure a loan that fits your needs. Remember, every on-time payment moves you closer to better credit and financial freedom.
If you’re ready to take the next step, start by reviewing your credit report and budgeting carefully. With persistence and smart planning, the keys to your next car are within reach.
Frequently Asked Questions (FAQs)
1. Can I get approved for a car loan with a credit score under 600?
Yes, it’s possible but expect higher interest rates and stricter loan terms. Improving your credit and having a solid budget will help your chances.
2. How long should I wait before applying if I just missed payments?
It depends, but generally waiting 3 to 6 months while making all payments on time helps improve your credit profile.
3. Will my car loan improve my credit score over time?
If you make all payments on time, yes, it can help build a positive payment history and boost your score.
4. Can I trade in my current car if I still owe money?
Yes, but the remaining loan balance must be settled, either by rolling it into your new loan or paying it off separately.
