Car Loans and Credit Scores
Whether you're looking for a family van, truck, sports car, or something more simple, owning a reliable vehicle is an important part of most Canadian's lives. It’s important that you can find the best and most affordable financing options during the car-buying process. When you’re applying for a car loan, a good credit score can go a long way, but luckily for the 20 or so percent of Canadians with subpar credit, there are still plenty of car financing options. Typically any Canadian get approved for a car loan regardless of their credit, but bad credit will usually result in a higher interest rate. In this article, we’ll talk about everything you need to know about buying a car in Canada and the role your credit score plays.
Minimum Credit Score Needed for a Car Loan in Canada
Generally speaking, lenders prefer when applicants have a credit score in the mid-600s for car loans in Canada. Lenders are especially happy when an applicant’s credit score is somewhere between 630 and 650. The more confident the lender is in lending money, the lower the interest rate that person will have to pay on the car loan.
That being said, there is some flexibility around this credit score requirement depending on the lender and borrower. Some lenders, including most banks, will be more stringent and look for higher credit scores. Whereas alternative lenders are often willing to accept lower credit scores. Some dealerships can also help borrowers find financing to meet their specific credit needs.
If your credit score is below 630, don't panic! You still have a great chance of getting approved for a car loan. Check out this article for more information about getting approved for a bad credit car loan. When shopping around, you will need to keep an open mind and stay realistic. It can take some time to find a lender that will work with you if you have bad credit so patience is essential.
Better Credit, Better Loan
A credit score in the mid-600s is considered average for a car loan and will result in mediocre loan terms. Credit scores between 680 and 720 are considered to be good. A credit score above 720 is considered excellent and will result in a low-interest car loan.
The credit score range you fall into can tell you a lot about the car loan offers you can expect to get. Naturally, the higher your credit score, the better the loan term/rate you should expect to receive. Everyone wants access to low-interest rates, low monthly payments, and larger loans. The higher your credit score, the easier it will be to get these ideal loan offers. In addition, a higher credit score will allow you to get approved quickly and easily.
But, just because you can access lucrative offers, doesn't mean you should automatically accept them. It is still important to consider your current financial position and future financial goals. Having a great credit score leads to better deals, just don't let that stop you from making a smart and educated financial decision.
Finding the Right Car Loan Lender
Because car loan lenders vary in their credit score requirements, your job is to find a lender that will work with your credit to extend financing for a car. What many borrowers forget is that lending is a two-way street. Borrowers have just as much of a right as lenders to get a deal they want and that works for their financial situation.
To get the best deal possible, ask yourself the following questions when evaluating your lender:
- Are you pressed for time to get approved for financing?
- Do you have bad credit?
- Is convenience important to you?
- Are you willing to shop around to find the best deal possible?
- Is this your first car loan and you don't know where to start?
- What are your current and long-term financial goals?
- Do the car loans offered align with your financial goals?
How to Improve Your Credit Score and Increase Your Chances for Approval
Before applying for a car loan, you need to know your credit score and do whatever you can to boost it if it’s low. You can further increase your chances of approval by researching the car loan market and lenders you're interested in working with. More often than not, choosing the right lender is the first step in getting approved for the car loan you need.
If you're interested in improving your credit score before applying for car financing, make sure that you:
- Check your credit score to see where you stand
- Contact a credit bureau to fix any mistakes you find in your credit report
- Pay off as much outstanding debt as you can afford
- Start making on-time, full and consistent payments towards other debt
- Gather multiple car loan offers, compare, and negotiate with lenders
- Consider saving up a down payment of 20-percent
- Consider your budget, specifically how much you can afford to pay in car loan payments and car insurance
Depending on the state of your credit, trying out even a few of these can help give your credit score the boost you want.
Find the Car Loan of Your Dreams Today
While a healthy credit score is beneficial when it comes to getting approved for the car loan you need, less than perfect credit won't exclude you from being a car owner. Now that you know what is required to get approved for a car loan in Canada, you can start working toward obtaining the car of your dreams.