The answer is yes, no and maybe! Your credit score has for many years been used by traditional lenders such as banks to put you into a category of risk. This risk category has come to be numbers driven, especially in the age of the internet when car loan applications are delivered online and approvals spit out according to a lender’s algorithm. What this means is that those lenders that only use a numerically based credit scoring approach, consistently will refuse your application for a car loan if you have a low credit score. 

There is a solution to being refused for a car loan by a traditional lender. Bank alternative lenders or sub prime lenders have filled the gap for consumers who do not fit into the traditional lender criteria. These lenders have developed programs for auto loan financing that do not base lending decisions strictly on a credit score. Bank alternative lenders focus less on a credit score and more on an applicant’s current credit status. They look at current bill payment history, employment and housing history. For some clients, the requirement for a down payment or security deposit may also be a condition of the lending agreement. Bank alternative lenders assess their lending risk on a customer’s ability to repay the loan, rather than just their credit score.

Benefits of Obtaining a Bank Alternative Car Loan and Your Credit Score

Obtaining a bank alternative auto loan has its benefits. The approved loan enables a consumer to re-build their credit by making on time and regular payments. Bank alternative lenders have an obligation to the consumer to report their payment history to credit bureau reporting agencies. By keeping their loan obligation, consumers can develop a favourable payment history that will be reported to their credit bureau and assist in raising their credit score. 

A bank alternative loan approval will also improve a person’s credit score by limiting the number of inquiries into their credit history.Each time a consumer applies for credit, the potential lender of the financing will pull a credit bureau report against them. If consumers plan on shopping around for a vehicle, a pre-approval commitment will prevent the need to pull a credit bureau report every time they find a vehicle they like. Credit inquiries are kept on a credit bureau for a minimum of two years, and the more inquiries made on a consumer’s credit report, the greater the negative impact on their credit history report. Multiple inquiries can leave lenders with the conclusion that a consumer is shopping for credit and continues the process because they’re being declined. 

There are bank alternative lenders such as TREND Financial that provide auto loan financing to consumers across Ontario. TREND Financial will work with consumers to improve their credit history by providing loans that are manageable and if maintained, will help in the credit re-building process. TREND Financial has an obligation to its clients to report the credit payment history to the credit bureau reporting agencies. Where in Canada, there are two agencies that record credit history, Equifax and TransUnion. Re-building a credit score can take time but with an auto loan designed for a low credit score, a bank alternative approval can be the first step in the credit score re-building process.