How To Get a Truck Loan with Bad Credit
If towing anything you want, loading your gear without rearranging your interior and getting off the beaten path are things that appeal to you, you’re probably a truck lover. Welcome to the club! Trucks are quickly becoming the vehicle of choice for many Canadians. In fact, Ford F-Series trucks were the most popular vehicles sold in Canada in 2017, with more than 150,000 people jumping on the bandwagon.
It’s not surprising that trucks are gaining in popularity. They’re functional, fashionable and quickly becoming more fuel-efficient than the gas-guzzling pickups of the past. Many of today’s newest models also boast a luxurious cab that feels more like a high-end sports car than a heavy-duty towing machine.
If you’re in the market for a vehicle that is as well-suited to an urban lifestyle as it is to a hard day’s work on the farm, you’ve probably noticed that new trucks tend to be more expensive than cars or SUVs. This might make a truck seem out of reach if you have bad credit, but that doesn’t have to be the case. Getting a bad credit loan for a truck isn’t that different from getting a bad credit car loan.
Here are some quick tips to help you get into the truck of your dreams quickly and comfortably:
- Get to know your credit situation
- Work on improving your credit score
- Set a realistic budget
- Save up for a down payment
- Consider a cosigner
- Get pre-approved before you go shopping
- Avoid multiple loan applications
- Choose a lender that specializes in bad credit loans
Get to know your credit situation
You should expect to get a credit check whenever you apply for a truck loan. Reputable lenders will ask for your credit history before they approve auto financing to find out what kind of borrower you are. If you have a low credit score (anything below 620), you’ll probably have a hard time getting approved for a loan.
Instead of getting surprised by a loan application rejection, you should find out what your credit situation is before you apply. In Canada, you can get a free copy of your credit report from Equifax Canada and TransUnion Canada. All you have to do is send in some basic information, and a report will be mailed to you in a few weeks. It’s a good idea to check your credit report with both bureaus at least once a year.
While credit bureaus aren’t upfront about the exact algorithm they use, your payment history, used vs available credit, credit history, diversity and credit inquiries (when your credit is checked by a lender) all play a part in determining your score.
Going through your report will not only give you a good idea of the overall health of your credit, but it will alert you to spending habits that are hurting your score. After all, there are a lot of credit misconceptions out there — like the idea that carrying a high balance on your credit card is a good thing or that everyone starts out with good credit.
Work on improving your credit score
Now that you have your report, you can start looking for ways to improve your score. Improving your credit situation is entirely within your control, and it can take less than a year to turn things around if you’re particularly diligent.
Take a read through your report and highlight any areas of concern. Do you have a history of paying your bills late? Are you carrying a lot of debt right now? Do you have a large balance on your credit cards? Figure out where you can make the biggest dent right away and focus your energy there.
Changing some of your credit habits and setting up automatic bill payments can go a long way in improving your credit score. It might sound counterintuitive, but using your credit card more often can boost your score — provided you do so in a responsible manner. Paying your bills on-time and in-full proves to a potential lender that you’re a responsible borrower, which will increase your chances of getting approved for financing.
Something to watch out for while going over your credit report is errors or incorrect information. You might be living with someone else’s bad debt and not even know it! Issues like this are surprisingly common and relatively easy to fix. Errors can be anything from a misspelt name to an incorrect bill payment to someone else’s debt showing up on your report. If you notice anything out of the ordinary, contact the credit bureau and file a dispute.
Set a realistic budget
Buying a top of the line truck with all the bells and whistles might not be in the cards if you don’t have the savings to support the purchase. Making a realistic budget might mean scaling back your half-ton goals because a cheaper truck will mean a smaller loan. Whether that translates into doing away with added features or opting for a pre-owned truck, there are a lot of great options that will get you from point A to B safely and economically.
Go through your finances and add up all of your current expenses, including things like rent or mortgage payments, food, internet and utilities. Compare that number to your income, and you should be able to figure out how much you can afford to spend on monthly truck loan payments. Make sure you leave yourself some wiggle room, so you don’t get overextended when you take on the loan.
If you have bad credit, affordability should be your main concern. Getting into a truck loan that’s more than you can handle financially puts you at risk of not being able to keep up with payments. Defaulting on your loan can put you in a worse place credit-wise than you started out.
Try out our handy Car Loan Calculator once you’ve worked out a budget. You can see how the price of a vehicle, duration of a loan and credit standing can affect the amount of your monthly payments. While the number is more of a ballpark amount than an actual quote, the calculator will give you an idea of what you can expect to pay for your new truck each month.
Save up for a down payment
Many people have poor credit because of an unfortunate situation, like a divorce or bankruptcy, but are still working full-time. If you have a regular income stream, consider putting some of that money aside for a down payment on your new truck. Showing up to a lender with cold hard cash for a down payment will make your loan application more attractive because it shows you’re able to save and you’re ready to invest.
If the balance in your savings account is on the small side right now, it might be a good idea to take a step back and reassess. Do you need a new truck right now or can you hold off for a few months until you’ve saved up some money? Like we mentioned before, a new ride isn’t worth getting into a bad financial situation — especially if you’re already dealing with a less than perfect credit scenario.
Because trucks tend to fall on the pricier end of the vehicle spectrum, it’s a good idea to put some money down to offset the size of the loan you need to take out. Paying for as much of the truck upfront as possible will save you money in the long run. Making a down payment, no matter how large or small means you will have to borrow less money from a lender and will be charged less interest over the course of your loan — which is great news for your bank account.
Consider a cosigner
Maybe you need that new truck right away because you’re about to start a new job or you’re about to expand your business. If you don’t have time to improve your credit score or set aside a down payment, you might want to consider getting a cosigner for your truck loan. A close friend or trusted family member with a good credit history is an ideal candidate, but there are a few things you should be aware of before you sign the dotted line.
The upside is that because your cosigner is lending you their good credit, you will be able to access financing that you wouldn’t be able to otherwise. The downside is that your friend or family member will be on the hook for your missed payment if you default on the loan. This can negatively affect their credit score and put a serious strain on your relationship.
There’s also no way to get out of a cosigned loan before the loan term is up or the truck is paid off. Once your cosigner has agreed to help you out, they’re in it for the long haul. While enlisting a cosigner can be a great way to get a loan with bad credit, it’s not something that should be taken lightly.
Get pre-approved before you go shopping
Before you set foot in a dealership, you should get pre-approved for a loan. Imagine finding the truck of your dreams (say, a 2018 Chevrolet Colorado in Silver Ice), falling in love with the handling and the interior and then finding out your loan application has been rejected. Getting pre-approved for a loan, especially when you have bad credit, can save you some serious truck heartbreak.
The bottom line is that a loan pre-approval will make shopping for a truck less stressful. Making that initial contact with your lender puts you both on the same page and makes it easier to work together to figure out the terms of the loan when it comes time to sign. Not to mention, heading into a dealership with a set budget will keep you from getting carried away with add-ons and gadgets you might not need.
The great news is that it’s relatively easy to get pre-approved. With Birchwood Credit all you have to do is fill out our online application form to receive instant confirmation on your truck loan pre-approval. We don’t ask you to share any sensitive information, and you’ll have an answer in less than two minutes.
Avoid multiple applications
While you’re shopping for a truck, you’re probably going to compare prices at a few dealerships around town to make sure you’re getting the best price. Unfortunately, this isn’t a good tactic when it comes to getting approved for a loan.
Loan terms and rates can vary from lender to lender. While most dealerships, banks and credit unions offer some form of auto financing, all of these places will ask for a credit check before they approve you for a loan. If you send loan applications to every financial institution and dealership in town, your credit score will take a beating.
This is because your credit score is negatively affected every time a lender makes a “hard inquiry” into your credit history. A hard inquiry happens when a lender needs to look at your detailed credit report to decide whether or not to approve your application. If they notice your credit history has been pulled by a bunch of different parties recently, they might think you’re low on cash or taking on a lot of debt.
Choose a lender that specializes in bad credit loans
Most banks and credit unions will only approve auto financing for customers with good credit scores and a spotless credit history. This is because they want to make sure all of the money they lend out is returned in full. While you can’t fault them for being careful, these strict rules and regulations exclude a large portion of the population who have less than perfect credit.
At Birchwood Credit, our in-house financing program offers more flexibility for customers with poor credit. In-house financing means we lend our own money for vehicles available on our lot. By doing business this way, we’re able to approve car loans for people who would usually be turned away by a bank.
Our car loan requirements are less strict than a financial institution, and we don’t rely solely on our customers’ credit scores. Instead, we sit down with each loan applicant to find out as much as possible about their overall financial situation. This system works well because we get to work out a loan that fits with your lifestyle and current financial obligations.
Buying a truck at Birchwood
Birchwood Automotive Group is the largest network of dealerships in Manitoba. We have 23 retail facilities and thousands of new and used vehicles to choose from — we even have a location that specializes in two of the most popular truck brands in North America. At our Birchwood Truck Store, you’ll be able to compare the towing capacity, fuel economy and safety features of the latest Chevrolet and GMC trucks on the market. If Ford is your truck brand of choice, we have a location that specializes in that too.
Our goal is to make the vehicle buying process as easy and stress-free as possible. If you have any questions about getting a truck loan with bad credit or are ready to start the pre-approval process, get in touch with us today. Our friendly, knowledgeable Birchwood Credit team is ready to help get you into the truck of your dreams.
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