Understanding Subprime Car Loans: What You Need to Know

Driving past an auto dealership, it’s hard to miss the signs promising “0% financing on all remaining models!” But the reality is that not everyone can qualify for such enticing deals. According to industry estimates, nearly a third of Canadians seeking to finance the purchase of a new or used vehicle don’t meet the criteria for prime interest financing.

However, this doesn’t mean these individuals won’t find financing options. Subprime lenders such as TD Non Prime, Scotia Dealer Advantage or the newest Canadian subprime player, Canadian Title Loan Corporation, offer financing to those with less than perfect credit. But what should consumers know about these subprime loans?

Impact of Poor Credit

Subprime lenders cater to individuals with significant credit issues, stemming from poor financial management skills or personal setbacks such as job loss, divorce, medical emergencies, or bankruptcy. Naturally, these subprime auto loans come with higher interest rates and less favourable repayment terms due to the increased risk to the lender.

While subprime mortgages were among the first to falter during the U.S. housing market collapse a few years ago, auto loans are different. Most borrowers continued to make their auto payments, largely because they needed their vehicles to get to work.

Should You Consider a Subprime Car Loan?

Before seeking financing, it’s essential to understand your credit situation. Many lenders consider a credit score of less than 620 as subprime. If you’re unsure about your score, obtaining a credit report from Credit Karma or Borrowell can give you an insight into your credit situation and ways to improve it.

Remember, the quickest way to rebuild or repair your credit is to demonstrate to lenders that you make payments regularly. If you haven’t borrowed anything for a long time, it might take longer to rebuild your credit score. One quick way to fix your credit score is to take out car loans and diligently pay them back.

When you decide on a vehicle, make sure to get all the details in writing. This includes anything to do with financing, interest rates, and the term of the loan – including any potential renegotiation terms.

If you need assistance with securing a car loan, feel free to apply through our user-friendly application form at Toronto Car Loans. As long as we receive the required information, we can get you approved for a car loan within 48 hours.

*Toronto Car Loans is not responsible for the accuracy of this information, and this information is for educational purposes only.