How unpaid collections affect your car loan options

Posted by on Aug 08, 2022 - Archived under Bad Credit Car Loan Tips

If you have fallen behind on your financial obligations and have unpaid collections inside your credit report, it can make securing a car loan more challenging.

Our intention is to show you how to get a car loan even though you have unpaid collections on your credit report.

It’s all about the narrative

The first thing you need to do is come up with an explanation of why you fell behind on your payments and have the unpaid collections in the first place.

Prospective lenders understand that life happens and consumers can fall behind, but having an explanation will show that you understand the cause of the hardship and are taking responsibility for it.

If the unpaid collection is a relatively small amount, the lender may pay it off on your behalf as part of the deal, but each loan is case by case.

Doing the work necessary to improve your credit score

This step is one you need to see through to the end; sign up for free access to your credit report with TransUnion and Equifax. When you have access to your credit reports, note which accounts are in collections or past due.

While making the minimum payment to all of your other accounts, you need to start putting more cash towards paying off the collections and accounts that are past due.

There are some credit experts who say that paying off an unpaid collection could hurt your credit score, that may be possible for the short term, but you still have an obligation to repay the debt.

Once you start paying down these debts, your credit utilization rate will improve, and that should put upward pressure on your credit score.

It could take a few months before you start to see tangible progress but the money you will save in the future is worth the inconvenience you are feeling today.

Budgeting for a car loan

Something that we cannot stress enough is making room in your budget to service the car loan. The average car loan in Canada was $500, but that was before Covid and inflation reared its ugly head.

You can easily spend $1,000 a month for a new car; this amount is a combination of the actual car payment, maintenance, insurance, and fuel.

Where to find a car loan in Canada when you have unpaid collections

To access car loans in Canada with unpaid collections, you need to contact your local car dealership. These local experts have literally seen and done it all when it comes to car loans, so they will have no issues finding a lender that is willing to approve your car loan.

The dealership will also show you how to improve your credit score so you never have to deal with these problems in the future.

With rising inflation and interest rates, you should start reaching out to the dealership today; it will be the best decision you made in quite some time.

For those of you who know that you have a challenging credit situation, please visit Dixie Auto Loans where we have a team of credit specialists ready to help you get approved for a car loan today!

Let’s get in touch! 

Dixie Auto Loans