Bad credit car loans in Canada: How to get approved

When you need to buy a car and your credit score is below 660, it can feel like you’re stuck in neutral. Maybe you’re recovering from some financial mistakes or establishing a credit history as a newcomer to Canada, but your low score means you have fewer lending options, stricter approval conditions and higher interest rates. So how are you supposed to drive a car off the lot without revving into further financial difficulty? It can be done if you follow the right route.

Subprime auto loans—aka “second-chance car loans” and "Bad credit car loans"—are designed for borrowers with a low or no credit score. Because lenders take on more risk lending to borrowers with damaged or limited credit histories, they offset that risk with higher interest rates and stricter loan conditions. The loans work the same way as any secured auto loan—the car serves as collateral—but the total cost of borrowing is significantly higher. Understanding that going in is half the battle.

Can you get a car loan with bad credit in Canada?

Don’t make a hasty auto purchase or financing decision. It’s a tough economy and everyone needs to make slow, well-informed choices. “Vehicles are more expensive, borrowing costs remain higher than they were a few years ago and many households are already stretched,” says Susan Eisner, CEO of SolveYourDebts.com in Saint John, N.B. “The challenge is that a car is often essential for work, childcare and for living in areas with limited transit, so people may feel pressured to accept financing terms that are not in their best interest.”

If you haven’t already done so, meet with a not-for-profit credit counsellor or independent financial expert who can help you review your overall financial picture before determining what your car budget should be. The monthly cash that you can set aside for a vehicle will need to cover car payments, insurance, gas, maintenance, winter tires, parking and more.

What kind of car should you buy with bad credit?

Take time to learn about the most affordable, fuel-efficient and safe vehicle options and their prices at a variety of dealerships or online retailers such as Autotrader.ca and clutch.ca. Ask your friends about reputable places where they’ve bought a car and find out if there are times of the year when dealerships or manufacturers offer better deals.

If you’re debating between new and used cars, lean toward the most affordable new cars or a used car that is only one or a few years old. (Lenders like higher collateral and less maintenance risk.) Choosing an electric vehicle over a gas-powered one makes little difference—the affordability, condition and age of the car matter most.

“Statistics actually show that it’s easier to get a loan for a newer car than an older car when it comes to someone recovering from bad credit,” says Mike Bergeron, counselling manager at Credit Canada in Toronto. Plus, interest rates for used car loans are often higher than new car loan rates, according to Equifax.

Considering leasing a vehicle instead? Ask whether payments are reported to Equifax or TransUnion®, so you can rebuild your credit score.

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Where to get a bad credit car loan in Canada

When it comes to bad credit car loans, not all lenders are created equal. Here’s the landscape:

Your financial institution, bank or credit union

This is always worth a conversation first, even if they’re unlikely to approve a car loan if your credit score is under 660. They may consider it if you have a large down payment or a trusted friend or family member with a high credit score who is willing to cosign your loan. (By cosigning, this person is responsible for paying the loan if you’re unable to do so.) 

Dealership financing

If getting a car loan from your bank or having someone cosign your loan aren’t available to you, check out the car financing interest rates from dealerships. Most dealerships work with a network of lenders and can often find financing for buyers that banks won’t touch. The convenience comes at a cost: Dealerships earn a commission on the loans they arrange, which can mean the rate you’re offered isn’t the lowest available. Compare quotes from multiple providers before committing.

Alternative and subprime lenders

These are the most accessible options for borrowers with bad credit, and they operate online and in person across Canada. Approval is more likely, but note that subprime lenders may charge rates that are double or even triple the average 6.5% interest rate currently offered to those with good credit, so you need to factor that in. “The interest rate matters enormously,” says Eisner. “A car that looks affordable at 6% can become financially risky at 20% or more.”

You can also start to prepare for a subprime loan with bad credit and no cosigner, including getting a down payment (the larger the better), proof of employment and income, such as bank statements and pay stubs, and a valid driver’s license that lists your current address.

Buy-here-pay-here lots

Some independent dealers finance their own inventory directly, which can mean easy approval but predatory rates and limited recourse if something goes wrong. Treat these as a last resort.

How to negotiate a car loan when you have bad credit

Once you know the model you’d like and understand the going rates for subprime loans, you’re ready to negotiate for the best price and financing. If you’re new to buying vehicles in Canada, consider bringing a friend along who’s experienced in buying cars and car loans and can help you with the fine print of proposed deals, from deposits, warranties and payment schedules to taxes, fees and more. It’s OK to ask for different interest rate options from the same dealer or lender, as they may not present the lowest rate at first. Apply for a quote and approval as necessary but hold off on signing an actual sales agreement until you have all the facts.

“People often focus on the monthly payment, but that can be misleading,” explains Eisner. “Car loans were traditionally five years, and now they are up to seven years, which increases the overall interest paid and risks equity at the end of the term. The real question is: What is the total cost of the vehicle once everything is included?”

It’s also important to keep in mind that while a seven-year loan lowers your monthly bill, not everyone can or will keep the same car for that long. If you trade in a car before paying off a seven-year loan, you risk "negative equity"—that is, owing more on the loan than the vehicle is worth and rolling that remaining debt into your next loan.

How to handle refinancing

Some high-interest lenders offer the possibility of reevaluating your credit within a year or two and potentially refinancing your agreement, but it’s up to you to ensure that your credit is improving and that you reach out to them within the refinancing window.

“Also, do your research,” adds Bergeron. “You don’t have to refinance with the lender that you originally went with. You can speak to other lenders, and they can take over that loan.”

How to build your credit after getting a car loan

Paying your car payments and other bills on time can help raise your credit rating, as can getting a secured credit card or a credit-builder loan through a reputable financial institution. (These secured products require a deposit so there’s no risk to the lender.) A postpaid cell phone plan works, too. In fact, a mix of credit types may improve your score faster than one type alone. Just don’t overextend yourself.

Bergeron recommends monitoring your credit report regularly to check for errors and to ensure that your score is going up. Even 20 points can make a difference. As he says, “A 687 score is a sweet spot where refinancing is very easy to do.”

The bottom line

As household debt and the cost of groceries and gas skyrocket, more Canadians are missing auto payments and choosing to return or sell vehicles they can no longer afford to keep. (The average auto-loan balance per Canadian consumer is $30,924, according to a fourth-quarter 2025 TransUnion® report.) These factors highlight the importance of using transit when possible, choosing a modest, fuel efficient vehicle rather than a luxury gas guzzler, and asking for financial guidance whenever possible.

“A car can help someone get to work, but a bad car loan can also create years of financial stress,” says Eisner. “Getting advice before signing is always better than trying to fix the problem afterward.”