Can you get a car loan with bad credit? A checklist before you apply

Short answer: often, yes. Lenders, not dealerships, make the decision, and some lenders work with people whose credit has been damaged. But a loan with bad credit usually costs more, so the work you do before you apply matters. Use this checklist to go in prepared.

If you're shopping in Grande Prairie, our guide to car loans while rebuilding credit explains who the lenders are. This checklist is the step-by-step version.

1. Get your credit reports

Canada has two national credit bureaus, Equifax and TransUnion. The Financial Consumer Agency of Canada (FCAC) explains that you can get your credit report from each for free, online, by mail or by phone:

• Equifax: 1-800-465-7166
• TransUnion: 1-800-663-9980

Checking your own report doesn't affect your credit score. Look for accounts you don't recognize, debts listed as unpaid that you've paid, and old items that should have dropped off. Errors can be disputed with the bureau. Be wary of anyone who contacts you offering to get your report for you: the FCAC warns that fraudsters pose as credit bureaus.

2. Know what lenders look at

According to the Office of the Superintendent of Bankruptcy (OSB), your credit score is based on your payment history, how much of your available credit you use, how long you've had credit, the types of credit you have and the number of enquiries on your file. Lenders may also consider your relationship with them, your income and your existing debts.

If you've been through a bankruptcy or consumer proposal, the OSB lists how long it stays on your report. See buying a vehicle after bankruptcy for what that means for a car loan.

3. Set a total budget

AMVIC's budget guide suggests setting a plan before you shop:

• Set a maximum price that includes all the costs of the purchase.
• Get insurance quotes in advance: the vehicle you choose affects your premium.
• Borrow the smallest amount you need, and don't take on more debt than you can comfortably afford.
• Focus on the total price first and look at the monthly payment only after that. A low payment over a very long term can leave you owing more than the vehicle is worth.

Don't forget fuel, maintenance and tires. Decide your limit at home, not on the lot.

4. Gather your documents

A complete application helps a lender give you a clear answer. Ask the dealership what its lenders need, but expect to be asked for:

• government photo ID and your driver's licence
• recent proof of income, such as pay stubs or a letter from your employer (self-employed? bring your recent notices of assessment)
• proof of address, such as a recent utility bill
• details of your current vehicle and any loan on it, if you're trading it in
• if it applies, your bankruptcy discharge or proposal completion certificate

5. Compare offers on total cost

The FCAC's guidance on shopping around is that a dealer doesn't have to offer you the lowest rate available, so get more than one offer if you can, including from your own bank or credit union. Compare:

• the total cost of borrowing
• the term (longer terms mean lower payments but usually a higher total cost)
• the all-in price of the vehicle
• anything added to the loan, such as extended warranties

Our guide to reading a car loan offer explains each line.

6. Know the red flags

• Anyone promising you'll be approved before a lender has seen your application.
• Pressure to sign the same day. AMVIC says you should never feel rushed or pressured, and to read every word and get every promise in writing (AMVIC).
• A finance agreement that shows income or a down payment that isn't accurate. AMVIC says to check both before you sign.
• Offers to remove accurate negative information from your credit report. The OSB says this can't legally be done early.
• Talk only about the payment, never the price or total cost.

Remember: Alberta has no cooling-off period on vehicle purchases. Once you sign, the deal is done, so take all the time you need before you sign.