How Do I Apply for a Bad Credit Car Loan?

So you need a new vehicle but you’re credit isn’t great and you don’t know how it works or where to begin….You’ve come to the right place!

Bad Credit Auto Financing is actually quite simple. Below we will walk you through the step by step process to getting approved for financing with bad credit, we are also going to show you how to set your loan up the right way so your credit rebuilds quickly and you don’t end up paying way too much for way too long!

Pre approval

The first step to securing a bad credit vehicle loan is the pre-approval process.

During this step is when the dealership collects the information the bank requires to analyze your risk factor, things like your birthdate, your current address, who your employer is, how long you’ve worked there and what your monthly income is. Sometimes the dealership will require your social insurance number if the bank is unable to pull your credit report, but they will only ask you for it if it is required. Usually the banks will also require proof of income from the applicant, proof of income comes from providing either your two most recent paystubs or a copy of your previous years T4 document and a job letter from your employer confirming your employment there.
Once the bank receives your application a credit analyst will review your file and take a look at your current and past repayment history, this is how they determine what interest rate you will qualify for. They will also analyze your “Total Debt Service Ratio” or TDSR for short. What this means is they are looking at your total monthly income compared to what you owe in bills each month. They want to make sure that you can afford your new monthly vehicle payment.

Once the credit analyst has determined what interest rate you qualify for and has confirmed that you can afford a certain monthly payment they will issue what’s know as a “payment call” to the finance manager at the dealership. This payment call is what the bank has determined an affordable monthly payment for your loan ($500, $350, $700 etc.) This doesn’t mean that you have to take whatever payment they tell you, it means that you are approved up to that amount and anything below that.

It is now the responsibility of the finance manager to work with you to find a suitable vehicle. That brings us to the next step below. Vehicle selection!

Vehicle Selection

Ok the hard part is over! What’s the next step in bad credit vehicle financing? The fun part! It’s time to pick your vehicle.

So now that we have established what payment you qualify for and at what interest rate its time for you to decide what vehicle you want.

By this time the finance manager at the dealership should have come up with 3 or 4 vehicle options for you (based on your driving requirements) that fit within the payment call the bank gave us.

This is a critical point in the process because the vehicle you choose will determine how easily and quickly your credit will rebuild. It may be tempting to jump into the biggest fanciest and most expensive vehicle but take a moment and consider this: At this point we are just starting to re-establish your credit so naturally this is when you are going to pay the highest amount of interest.

Your goal at this point should be to get into the vehicle that suits your needs at the lowest cost possible. The reason for this is simple, as long as you make all your payments on time your credit rating can be improved drastically in only 9-12 months. Once your credit rating improves you will now qualify for substantially lower interest rates (often times 0%). That being said it makes far more sense to finance less money when you are paying the highest interest and then in 9-12 months you can now shop for your dream vehicle and don’t have to worry about paying double…sometimes triple the cost of the vehicle because of interest rates.

Remember at this crucial stage of the process: LESS IS MORE!

What happens after you buy your vehicle?

So you found a new vehicle and got approved for financing, what happens now?

When you take out an auto loan the bank reports your payments (good or bad) to the two major credit reporting agencies, Transunion and Equifax. These are the companies that provide your credit report to lending institutions when you apply for a loan. These reports will determine if you get approved for a loan and at what interest rate.
As long as you always make your monthly payment on time, once a month the bank will report a good payment to Transunion and Equifax.

Sometimes it only takes 9-12 months worth of good payments for the bank to re approve you at a substantially lower interest rate so that’s why it so important to buy a vehicle that is within your means so when the time comes its much easier to trade in and you don’t have to worry about adding any of the remaining loan to your new low interest loan.

Rebuilding your credit through an auto loan does not have to be expensive and confusing. is committed to providing our customers with the right tools to get driving a new vehicle while rebuilding their credit. If you are ready to get started and make bad credit a thing of the past click Get Approved Now below and let’s get to work!

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