Low Credit Score? Here's Everything You Need to Know About Bad Credit Car Loans

It's time to buy a vehicle, but you know that your credit score or limited credit history will make it challenging to get approved for a loan. Is all hope lost? Are you destined to drive your current vehicle until you can improve your credit score, or will you face unemployment should your vehicle break down beyond repair and leave you without a reliable way to get to and from work? Fortunately, your search for bad credit car loans brought you to the experts here at iDrive Canada, where we're excited to show you that it's possible to get a car loan with bad credit.

Credit Score 101: What It Is and How It's Measured

Your credit score is a three-digit number that will follow you around your entire life. It's a number that shows lenders how you manage your debt and the risk of loaning you money. The higher the number, the lower the risk, and the more likely a lender will approve you for a loan. On the other hand, the lower the number, the harder it is to get approved. Although it is not impossible to get approved, lower credit scores often come with higher interest rates as lenders mitigate the risk that comes with the loan.

How It's Calculated

Although it may seem like it at first, your credit score isn't a random number. Instead, it's calculated by Canada's two primary credit bureaus––Equifax and TransUnion. The bureaus gather data about your financial activity, dissecting it into five primary categories to determine your score. So, what factors play a role in your credit score?

• Payment History (makes up 35% of score): looks at your current and recent debts, the timeliness of your payments, and if any debts went to collections. Late payments and collections-related debt stay on your credit history for six years.
• Credit Utilization (30% of score): looks at how much credit you're using compared to your available credit. Ideally, you want to use no more than 35% of your available credit, which means not maxing out your credit cards.
• Credit History (15% of score): looks at how long your accounts have been open; longer is better as it proves a strong history of responsibly managing your debt.
• Credit Mix (10% of score): looks for a balance between installment credit (mortgages and auto loans) and revolving credit (credit cards).
• Credit Inquiries (10% of score): look at how often you apply for a new credit card or inquire about a loan. Multiple or frequent hard inquiries can be a sign of financial difficulty and that you need money quickly. Soft inquiries like checking your credit score via tools like CreditKarma don't negatively impact your score.

The Good, Bad, and Fair of It All

Based on the categories above, your credit score will range between 300 and 900. While every lender sets its standards as to what scores are acceptable, Equifax and TransUnion offer general guidelines so that individuals know where their scores fall. A score between 300 and 559 ranks as "Poor," 560 to 659 as "Fair," 660 to 724 as "Good," 725 to 759 as "Very Good," and 760 to 900 as "Excellent."

The Credit Score Dilemma

The average credit score in Canada is at or below 660, which means most Canadians struggle to qualify for a traditional automotive loan. However, the real dilemma is what it takes to repair your credit. The best way to rebuild your credit is to prove you can handle debt responsibly, but if your credit score is low and a lender won't approve you for a loan, how is it possible to improve your score?

The same dilemma occurs when it's time to buy a vehicle. For example, let's say that your credit score is 625 because of financial trouble that forced you to miss a few credit card payments. You need a reliable vehicle to get to work to earn a paycheck to make your payments on time. However, you can't get approved for a loan, making it impossible to get to work and increasing the likelihood of losing your job. It's a never-ending cycle that iDrive Canada is here to break.

Getting a Car Loan with Bad Credit

While someone with a high credit score won't have any issues getting approved for an automotive loan, that doesn't mean that it's impossible if you have a low credit score or a limited credit history. We specialize in working with individuals with low credit scores because we understand that financial troubles can impact everyone; however, we don't believe those troubles should define or limit your future which is exactly why we offer bad credit car loans in Alberta.

In the automotive business, individuals with low credit scores are typically eligible for what's known as subprime or deep subprime loans. These loans recognize the individual's low credit score or limited credit history and accept the risk of lending the money by charging a higher interest rate. Some subprime lenders also charge additional fees since there's a greater risk for delinquency, i.e. failure to pay. These fees might include processing charges, a required service contract for maintenance, or prepayment penalties if the loan is repaid early.

Overall, a higher interest rate and additional fees aren't ideal. There's also the risk that the subprime lender won't report your payments to the credit bureaus. In other words, you might be making your monthly payments on time, but it isn't impacting your credit score. Because of this, it's essential to work with companies like iDrive Canada that report your payments to the major credit bureaus. We're determined to solve the credit score dilemma and have designed a process that allows you to rebuild your credit and get behind the wheel of a reliable vehicle.

Stress-Free Approval Is on the Horizon

Our guarantee to work with customers with all types of credit is not a joke, nor is it too good to be true. Our three-step process is simple, straightforward and ensures you find the perfect vehicle for your needs at a price you can afford. Even better, it starts on our website, where getting approved is as simple as telling us more about yourself.

Working with iDrive Canada starts by sharing your name and contact information with us so that we can make a personal connection with you. Once we have this information, you'll have access to a wide inventory of cars, trucks, and SUVs. Then, when you find the perfect model for your needs, you can start the pre-approval process by providing basic information about your monthly income, down payment, and trade. After that, we'll reach out with any questions, let you know your approval status, and finalize the sale to ensure the model you've chosen fits all your budget and driving needs.

Bad Credit? No Problem!

Credit scores fall into the same category of talking politics and religion at the dinner table; you don't bring it up. Thankfully, however, the stigma of having a low credit score is fading as more and more organizations like iDrive Canada recognize that financial trouble can befall anyone. This realization has spawned more compassionate dealerships and lenders willing to take a greater risk by helping someone rebuild their credit score and get back on the road to financial freedom. Contact us today to learn more.