Think you don’t have a good enough credit score for a car loan? You might be pleasantly surprised. Car dealerships aren’t shy about their desire to sell you a shiny new ride, even if your credit score is on the low side. You might end up with a higher interest rate on your car loan than average but you can always refinance it later on—after the loan helps you build your credit score. Here’s a quick look at everything you need to know about credit scores and applying for a car loan.
If you want to buy a new car with a car loan, your credit score is traditionally a big piece of the puzzle. Dealerships, for instance, will need to check your credit score to finance a car in your name. Lenders, in turn, will use your credit score to determine the terms of your loan, such as interest rate.
The good news is that today, there’s no minimum credit score for a car loan in Canada. However, the lower your score the more limited your options may be. For this reason, it’s a good idea to know what your credit score is before you start shopping around for a new car. This way, you’ll have a better sense of whether you’ll need a cosigner, larger down payment, or to apply for a loan with a lender that specializes in low-credit car loans.
These days, checking your credit score is fast, free, and easy. You can do it without even leaving your couch by visiting a site like Credit Karma, which provides free credit scores and reports in minutes.
In Canada, credit scores range from 300 to 900 points. There are various scoring models, but generally, if your score is higher than 660 your rating is considered “good” to “excellent” and you can generally walk into any dealership and qualify fairly easily for a car loan.
Today, car loans are available to customers regardless of whether they’re in the red, amber, yellow, or green.
If your credit score falls between 560 and 659 your rating is considered “fair” and you’ll likely have some more challenges ahead of you in your search for a car loan. Generally speaking, if your credit score falls under 630 in Canada, you’ll find it difficult to get approved for the very best interest rates.
Luckily, there’s no magic number for the credit score needed for a car loan. You just need to know where to look. If your credit score is below 600, there are lenders that specialize in helping you get the vehicle you need. And that how Canada Drives helps. It connects you with local dealerships ready to help. You can apply online in two minutes, learn your pre-approved loan amount, and discover the best options near you.
While not essential, a cash down payment can help boost your chances of approval because it reduces the overall amount you need to borrow. Furthermore, adding a trusted family member or friend as a co-signer can make it easier to get that stamp of approval because it lowers the level of risk to the lender. Of course, these options aren’t available to everyone, and simply choosing the right lender is more than half the battle.
While there’s no magic credit score needed for a car loan in Canada, the lower your credit rating the more difficulty you’ll have getting approved. You’ll also face higher interest rates than average.
The silver lining is a car loan helps you build up your credit fairly quickly. All you have to do is make your car payments on-time and in-full. Your payment history makes up 35% of your credit score, so it’s important to stay within your budget when applying for a car loan.
If you’re making regular on-time car payments, you can begin to see positive changes to your credit score in as little as 30 days.
Once you’ve improved your credit score, you can then try to refinance your car loan. This is essentially like buying your car all over again, only this time you don’t need to negotiate over the price of the vehicle. Instead, the lender assesses your vehicle’s eligibility for financing and, if approved, provides a new financing contract for the amount owing.
In doing so, you may be able to take advantage of a lower interest rate, thanks to your improved credit score. This can save you thousands of dollars over the full term of your car loan. It might also give you the chance to extend the loan’s term by a few more years, which will lower your monthly car payments.
By lowering your monthly payments, refinancing is a smart way to further build your credit, as you can use the savings to pay down other high-interest loans, such as credit cards.
If you want to get preapproved for a new car loan, apply with Canada Drives today. You can apply online for free and get approved in as little as 48 hours!
Your online application takes only 3 minutes to complete and we only ask for information we actually need.
Or feel free to call us at 1-888-865-6402