Can I Finance a Car With Bad Credit?

Yes, you can finance a car with bad credit in Canada. Here's what to expect, how to improve your chances, and how to avoid predatory loans.

Yes, you can finance a car with bad credit in Canada. It will cost more and require more documentation, but it's absolutely possible — and it can even help you rebuild your credit if done right.

What counts as bad credit?

In Canada, credit scores range from 300 to 900. Here's how lenders typically categorize them:

If your score is below 650, you'll likely need a subprime lender. Below 550, your options narrow further but still exist.

What to expect with bad credit financing

• Higher interest rates: Subprime rates typically range from 9.99% to 29.99%
• Larger down payment required: Often 10–20% minimum
• Shorter maximum term: Usually capped at 60–72 months
• Income verification required: Pay stubs, bank statements, sometimes T4s
• Vehicle restrictions: Newer vehicles with lower kilometres; no private sales
• GPS and kill switch: Some subprime lenders install payment protection devices

How to improve your chances of approval

1. Save a larger down payment

The more you put down, the less risk the lender takes. A 20% down payment on a $20,000 car ($4,000) significantly improves approval odds and lowers your rate.

2. Get a co-signer

A co-signer with good credit essentially lends you their credit score. This can drop your rate by 5–10 percentage points. Make sure your co-signer understands they're equally responsible for the loan.

3. Show stable income

Lenders care more about your ability to pay than your credit score alone. Bring:

• Recent pay stubs (2–3 months)
• Bank statements showing regular deposits
• A letter from your employer confirming your position
• T4 or Notice of Assessment for self-employed applicants

4. Choose the right vehicle

Subprime lenders prefer:

• Vehicles under 7 years old
• Under 120,000 km
• From a dealership (not private sale)
• Mainstream brands (Toyota, Honda, Ford, etc.)

5. Get pre-qualified first

Pre-qualification tells you what you can expect before a hard credit pull. This lets you shop with confidence and avoid multiple hard inquiries that further damage your credit.

Red flags: predatory lenders to avoid

• Guaranteed approval: No legitimate lender guarantees approval
• No credit check: If they don't check credit, the rate will be astronomical
• Weekly payments: Often disguised very high annual rates
• Pressure to buy extras: Extended warranties and credit insurance inflated into the loan
• Yo-yo financing: They let you drive away, then call back days later saying financing fell through and offer worse terms

How a bad credit car loan can help you

A car loan is an installment loan reported to Equifax and TransUnion. Making on-time payments every month builds positive credit history. After 12–18 months of perfect payments, you may qualify to refinance at a lower rate or get a prime loan for your next vehicle.

The bottom line

Bad credit doesn't mean you can't get a car — it means you need to be smarter about the process. Get pre-qualified, save a down payment, bring your documentation, and choose a reputable lender.

Get pre-qualified in 3 minutes — no credit check, no judgment.

Frequently asked questions

What credit score is considered bad credit in Canada? Canadian credit scores run from 300 to 900. Lenders generally treat scores below the low 600s as subprime, though each lender sets its own cutoffs.

What interest rate can I expect with bad credit? Subprime car loan rates in Canada typically run from about 10% to 30%, depending on your score, income, down payment and the vehicle.

How do I avoid predatory bad credit car loans? Be cautious of guaranteed-approval promises, pressure to sign the same day, add-ons you didn't ask for, and terms that aren't in writing. Compare offers by APR and total cost, not just the monthly payment.