Bad credit can happen to good people, and unfortunately, this problem can make it hard to get approved for an auto loan. The good news is that poor credit does not mean you can’t get a pre-owned vehicle. Special financing options make it possible for those with even the worst of credit scores get approved.
These special financing options are designed to help people obtain better credit in negative economic situations. Special finance rates can help you secure a vehicle and reduce your worries.
How Special Finance Loans Work
Subprime and nonprime, two common special financing options, work with those who have a limited credit history or one with delinquencies. These factors often make obtaining an auto loan with traditional financing difficult. Special finance companies deal with subprime borrowers to overcome these limitations.
In most cases, the interest rates associated with special financing are higher than those with traditional financing. However, these interest rates, as well as term lengths, completely depend on the lender. Some lenders prefer shorter-term loans while others like to give borrowers more time to complete the repayment of an auto loan.
How Special Financing Can Help You
In some cases, a special finance lender may not look at your credit history for determining your auto loan. They will instead look at your employment as a determining factor in approving the auto financing. Your proof of employment proves that you can earn the money to pay off your auto loan through work.
You can rebuild your credit by paying-off a special finance loan, and in return, get lower rates and payments in the future. By making all of your payments on-time, you may also get the opportunity to refinance your loan through a traditional lender and lower the rate on your original loan.
If you can’t get an auto loan through a traditional lender, the special financing approach can be a great option for getting you back on the path to good credit.
Qualifying for Special Financing
When it comes to auto loans, no true standard applies to all special financing options. However, these are a few of the common requirements for qualification:
You are at least 18 years of age
You are a current resident of Canada (you will need to provide proof of your residency)
You have a pre-tax monthly income of at least CAD 1500
You have the ability to insure the vehicle in your name
You’re employed full-time or earn a guaranteed income
To find out what special financing you may qualify for, you should find out what your credit score is first. There are two major reporting firms (Equifax and TransUnion) that can provide you with a free credit report each year.
Once you know your credit score, you can enter an online application at a special finance company. Remember, poor credit does not mean that you can’t get the car you need. These special finance companies will help you secure your special finance auto loan and get you in the driver seat!
Types of Special Financing Options
Most traditional financing companies, such as credit unions and banks, offer auto loans only to individuals with good credit histories. If you’re struggling to get approved for an auto loan through traditional lenders, you should look at the different types of special financing options available.
In most cases, financing comes in the form of a secured loan. . This collateral can be the actual car you’re purchasing with a lien placed on it. In this case, the finance company will hold your title until all principle, interest, fees have in full. You can also use personal property or investments to serve as collateral.
From the lenders perspective, the collateral serves as your guarantee that the loan will . It’s a way of “” the loan. Since you’re providing this “insurance,” you can typically expect lower rates and longer terms.
It is to remember that, with a secured loan, your lender has the right to take ownership of your collateral if you’re unable to repay the loan according to the agreed terms and conditions.
Open bankruptcy auto loans are available from the point you file your papers with the court until you receive your discharge documents. They can with both Chapter 7 and 13 bankruptcies; however, the requirements are different for each.
In most cases, Chapter 7 Bankruptcies remain open for three to four months. You have to complete your 341 meeting with your creditors before applying for an auto loan. is due to a variety of reasons:
Debts can no longer be added to your bankruptcy petition after this meeting. If you get an auto loan before this point, it could be discharged with the rest of your debts.
After this meeting, you’re still liable for your loan balance even if your case is dismissed for any reason.
Your debt to income ratio is naturally lower after this meeting since your creditors have agreed to terms and extinguished your debts.
Once you can provide proof of your completion of this step in the bankruptcy process, you can fill out an online application.
Chapter 13 Bankruptcy allows a little more breathing room for car loans. is these bankruptcies take much longer to complete (generally three to five years).
Since these bankruptcies require you to set up payment plans with a court-appointed trustee, you will need to get approval from that trustee before applying for auto financing. You should compile a list of the reasons why you truly need a vehicle and present it to your trustee.
This approval process is called a “Motion to Incur Additional Debt.” Once , you will get an “Authorization to Incur Additional Debt.” You can then use this authorization to apply for an auto loan.
Whether some unfortunate circumstances kept you from making payments or you simply forgot about a debt, you shouldn’t be embarrassed about your credit score. These things happen to everyone, and you can still get the pre-owned vehicle you need with special financing!
Canada Credit Financial’s blog is a free resource for credit challenge customers who have the desire to improve their lives by acquiring the knowledge required to increase their credit score. Our team understands that even good people are often forced to go through tough times. A divorce, a loss of income, an illness, or other similar circumstances out of your control might have put a toll on your credit history and your financial life. We want to help by giving you access to quality content that will provide you with the know-how, the tools, and the strategies to get back on your feet and enjoy the freedom of a healthy credit score.
Our writers specialise in automotive financing. To our knowledge, the purchase of the right vehicle, at the right price, financed from the right lender, at the right interest rate provides one of the fastest and most robust ways to rebuild your credit history. It’s impossible to erase bad credit, but rebuilding a solid and diligent payment history through a vehicle financing is a great way to separate yourself from your past credit bumps to enjoy a better future.
You can also use the information to protect your current credit, avoid pitfalls, and educate your children so they are prepared to enter the world equipped with the knowledge that will give them an edge and will allow them to fulfil all their dreams.
Credit is a great tool if used properly. At Canada Credit Financial we want you to control your credit; we don’t want credit to control you.