What Is A Good Credit Score To Finance A Car In Canada?

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What is a good credit score to finance a car in Canada? Why is a credit score given so much importance for loan approval? These are two of the most common questions that most loan borrowers have when they are planning to purchase a car by taking out an auto loan. Most Canadians prefer financing their car over the option of paying the entire amount in cash. This helps them in avoiding breaking their hard-earned savings and paying the huge amount in part over the term of the loan. But getting a loan application approved is not the simplest task. A borrower has to meet the eligibility criteria that are set by the lender or even the car dealership if you wish to directly finance your car from the dealership. Your credit score is one of the most important parameters that are judged by lenders when you apply for a loan. In this article, Carsfast will take you through the credit score requirements that are set by loan providers and dealerships in Canada for offering you a car loan. We will also help you understand how you can work towards building a better credit score and how you can apply for a car loan in Canada even if you have a bad credit score. 

What Is A Good Credit Score Canada?

A three-digit number that ranges between 300 and 900 assigned by credit bureaus is known as a credit score. This number is determined based on your past credit history, payment records, number of open credit accounts, and the types of credits that you have borrowed. Credit score ranges go from poor to excellent depending on what your credit score is. A good credit score is a score between 660 and 725. Anything above this range is a very good or an excellent score while anything below this range is a fair or a poor score. The following is how credit scores are ranked from poor to excellent according to the Canadian system. 

  • Poor score: 300-560
  • Fair score: 560-660
  • Good score: 660-725
  • Very good score: 7250760
  • Excellent score: 760-900

Importance Of Credit Score For Car Loans Canada

Ruben Hinojosa quotes, “A person’s credit report is one of the most important tools consumers can use to maintain their financial security and credit rating, but for so long many did not know how to obtain one, or what to do with the information it provided.” Why are credit scores given so much importance when borrowing a loan? Your credit score can affect your loan application in the following ways:

  • First, your credit score allows a lender to judge your ability to repay the loan. This is how it is decided whether you will qualify for the loan or not and whether your application is rejected or accepted. 
  • Second, your credit score determines what car loan interest rate you will be paying for the amount that you are borrowing. Having a credit score that falls in the very good or excellent range will make it possible for you to pay a lower interest rate on the loan amount that you are borrowing. 

What Is A Good Credit Score To Finance A Car?

If you wish to borrow a car loan in Canada, what is a good credit score to finance your car? A good credit score that will help you borrow a loan for a low-interest rate will be anything above 660. If you have a score that goes above 660, you will fall in the range of good, very good, or excellent credit scores. Having a high score not only reduces the interest rates that you have to pay to obtain a loan but also makes loan borrowing and loan approval easier for you. You can get a higher amount as a loan, you will have the power to negotiate the terms of the loan that you are borrowing and you will also have more options to choose from. 

For a lower credit score, there is still a possibility of getting a car loan. The lender may accept credit scores between 630 and 650 to approve a low-interest loan. If your scores are in the fair or poor score ranges, you might be in trouble and will have to pay a higher interest rate. You could connect with your dealership for better loan offers with a low credit score. 

How To Improve Your Credit Score Canada?

A good credit score is a basic requirement for you to get a car loan from a reputed bank or credit union in Canada. Even if you finance your car directly through the car dealership, a high credit score will be beneficial for you. What can you do in order to build a good credit score? By improving on the factors that affect your credit score, you can increase your credit. The following tips will help you build credit to apply for a car loan. 

  • Pay all your bills on time. We cannot stress this enough but paying your bills on time accounts for a major portion of your credit score. If you make every payment without missing the deadlines, you will be able to build a good credit score. 
  • Follow the 30% rule and keep your credit card balances lower than 30% of the overall limit. 
  • Try mixing different types of credit by borrowing different types of loans. 
  • Do not close any credit card accounts.
  • Do not apply for too much credit as it could result in hard inquiries that will lower your credit score
  • Correct any errors in your credit report at the earliest. 

Another method of building credit is by borrowing a loan and making the repayments on time. If you have a good credit score to finance a car, you must take out a loan and regularly pay your installments to improve your credit score further.

Can You Get A Car Loan In Canada For A Bad Credit Score?

By now you might have understood that the credit score requirement for financing your car will vary from one lender to the other. While there will not be a major difference between the credit score requirements of two lenders, you can always connect with your current bank to look for better loan approval opportunities. If you have a very low credit score, your only options might be to finance your car through your car dealership or pay a higher interest rate. Some other ways how you can get a car loan approved for a bad credit score in Canada are:

  • Get a co-signer for your loan. You can find a person who has a good credit history and can assume the responsibility of repaying the loan if you are unable to repay the loan. 
  • Apply for a bad credit car loan. There are a few lenders who specialize in loans for individuals with a low credit score. If you are unable to meet the eligibility criteria elsewhere, these lenders can help you borrow a car loan. What you need to note is that the interest rates are higher than all other lenders. 
  • Pledge any assets that you own as collateral against which you can receive the loan amount that you need for your car. This will work as a guarantee for the lender and increase your credibility.

Are you on the search for a car loan in Canada with a bad credit score? Carsfast provides an easy application process that makes it easy for you to secure the financing you need to get the car of your dreams.

Conclusion

As we conclude this guide on credit scores and how credit scores affect your loans, we hope that the article has helped you in knowing more about this criterion that most lenders use for approving or rejecting your loan application. Knowing what a good credit score to finance a car is will help you either choose the loan that you can qualify for with your existing credit score or build your credit score enough to apply for a car loan. For this, we have shared with you a few tips on building your score and also how you can get a loan if you have a bad credit score. 

Frequently Asked Questions (FAQs)

What is the best credit score to buy a car?

The best credit score to buy a car is a score in the excellent range between 760 to 900. You can also find lenders and dealerships offering you car loans for credit scores lower than this. 

How much credit score do you need to get a car loan?

To get a car loan for a lower interest rate, you need a credit score of 660 or above in Canada. 

Will a 650 credit score get me a car?

Yes, a 650 credit score will help you get a car. You may or may not have to pay a higher interest rate at a bank. You could also contact a car dealership to get a loan for this credit score. 

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