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Published on December 3rd, 2009 | by Canadian Credit Expert


Your First Car Loan

First Car Loan ApprovedBuying Your First Car

No matter who you are, buying or leasing a new car is a big deal. For most Canadians buying a new car is considered a major purchase and, for many, an exciting one. There is however another group of consumer in Canada with a much stronger connection to the car buying experience – the first time buyer.

Everyone remembers their first car. For some it was a hand me down from parents or an older sibling, others got their first car as a special gift but for many it was the result of a lot of hard work and sometimes, a little luck!

Many consumers look to banks or auto lenders to finance their new car. This is especially true with first time buyers. After all most consumers looking to buy their first car are younger or less established than those looking to replace a car or buy an additional vehicle.

If you’re what the industry considers a “young buyer” then getting auto financing can be difficult. There are two main reasons why a young buyer looking for a car loan is also a young buyer having a hard time getting approved – lack of credit and inexperience.

Limited Credit or No Credit

The main reason getting approved on a car loan is difficult for a younger buyer is the fact that many young buyers have no credit or limited credit. Without established credit, there is no good or bad credit history for a bank or finance company to base their decision on. This lack of credit represents what the banks consider a high credit risk and usually results in car loans being rejected or credit cards being declined.

Inexperienced Credit

If you’re young and you do have established credit, then things can get a little easier but obtaining a car loan can still be difficult. A young buyer with good credit is still in the early stages of their credit career, which for most banks, is still considered a risk. While no financial institution will go on the record and say they don’t like younger applicants (after all financing should be about credit scores and affordability, not age).

How to Get Approved for a Car Loan as a Young Buyer

While its not ideal, the truth is that being a young buyer or having limited to no credit can make auto financing a challenge. Fortunately there are steps Canadian’s can take to make getting auto loan approved a reality, no matter what age they are or how limited their credit is. Here are just a few ways to get approved for your first car loan:

Equity Car Loans

An equity loan is a term often used to describe a loan where the lender has significant equity in “the deal”. More favorable and much easier to approve, an equity loan is essentially a car loan with either a lot of cash down or a very strong loan to value ratio (the value of the vehicle is either very close to the size of the loan or greater the loan). The reason why an equity loan is favored by car lenders revolves around their overall position on the deal – which is usually strong.

If an auto lender is forced to repo their vehicle on an equity loan, they are more likely to take a smaller financial loss or even no loss at all. This major reduction in risk, makes getting approved by the bank a lot easier.

If you’re a younger buyer that is fortunate to have access to significant cash, using it as a down payment can help you get approved!


Banks love co-signors. If your loan application is denied most car dealers or brokers will immediately ask you for a co-signor. By adding an additional applicant to your credit application you are giving the bank more security and reducing their risk.

While a co-signor is never a guarantee, having the right one can make a big difference. For younger applicants a parental co-signor is usually preferred (for obvious reasons).  As long as a co-signor adds “value” to the loan application, the bank or auto lender will always look upon it more favorably.

If your car loan is denied and you have a willing co-signor, go ahead and ask them to help you out – they might just get you approved. Just remember, both you and your co-signor are equally responsible for the loan and any derogatory credit history you cause will harm both your credit score and your co-signors credit.

Special Finance Auto Loans

No matter how bad your credit is, there is always someone willing to lend you more money (at a high interest rate). There are special finance companies in Canada that will finance a car loan for consumers in bankruptcy, after bankruptcy or even after a second bankruptcy. Getting approved as a first time buyer is often easier than finding financing after a 2nd bankruptcy, but if you cannot get approved through a conventional bank, with a co-signor or you don’t have any money down, a special finance auto lender might be able to help.

If you anticipate a problem getting approved, have bad credit or a previously denied loan application, contact a car dealership that is qualified to deal with special financing and bad credit car loans!

Establishing Your Credit With a Car Loan

Not only is your first car a big step in your life, it is also a major step in your credit career. A car loan reporting to your credit bureau every month can have a very positive impact on your credit score or a very negative impact on your credit history.

While its one of the best ways to start building your credit as a young person, a car loan should never be an experiment with credit or a lesson in bad credit. If you’re financing your first car loan please be responsible and only sign a contract for a car loan you’re happy with and a payment you can afford!

Do you have more bad credit questions? See what Any Bad Credit Canada is all about – consumer credit and bankruptcy answers!

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About the Author

The Canadian Credit Expert most recently worked in sales financing for a major bank in Canada but has done everything from working at a new car dealership to collecting on past due loans for a Canadian auto lender.

  • Samuel Montierth

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