Thinking about buying a new car? Chances are, you’ll need to get a car loan to cover the cost. Whether you go through the bank or a dealership, your lender will check your credit as part of the application process. Let’s look at the credit score you’ll need to get approved—and some options if your credit isn’t quite where you want it to be.
What credit score is required for a car loan in Canada?
There’s no magic number when it comes to the credit score you need to buy a car—each lender has its own standards. That said, most borrowers who qualify tend to have credit scores of 661 or above. Basically, if your credit score is in the "good" range (660 to 724), you’ll generally be able to qualify for a car loan with most lenders. Here’s a quick look at Canada’s credit score ranges:
- Poor: 300 – 559
- Fair: 560 – 659
- Good: 660 – 724
- Very good: 725 – 759
- Excellent: 760 – 900
So, as we said, if your credit score is in the "good" range, you’ll likely be able to qualify for a car loan with most lenders. Credit scores in the "very good" or "excellent" range can open the door to the best car loan deals out there, including lower interest rates, better terms, and possibly higher car loan amounts.
But if your score falls into the "fair" or "poor" categories, your choices might be a bit more limited. The upside? Some lenders specialize in working with people who have lower credit scores. Plus, lenders don’t just look at your credit score; they consider other factors, as well.
Other factors lenders may consider when you apply for a car loan
Yes, your credit score plays an important role when applying for car loans with traditional lenders, but as we just mentioned, some lenders focus more on other factors. Alternative lenders, for example, specialize in working with people who have lower credit scores, and they consider a few additional factors when deciding on approvals:
Your down payment
If you’re applying for a car loan with poor credit, a larger down payment can make a real difference. Not only does it reduce the amount you need to borrow, but it also shows the lender that you’re committed to the investment. For some alternative lenders, this can be a big plus in your favour.
Your income and job
Many alternative lenders put a big emphasis on your income when reviewing a car loan application. Steady employment and a reliable income can give lenders confidence in your ability to make repayments, which can help balance out a lower credit score in their eyes.
Your debt-to-income ratio
Though your debt-to-income (DTI) ratio also affects your credit score, some lenders pay close attention to it on its own. This ratio shows how much of your income goes toward paying off current debts, helping lenders gauge if you can handle a new car loan comfortably. A lower DTI ratio suggests you manage debt responsibly and avoid taking on more than you can handle, which can be reassuring to lenders considering your application.
Can I still get a car loan if I have a bad credit score?
Yes, you can still get bad credit car loans! In Canada, even with a fair or poor score (refer to the chart above), you still have options, like alternative lenders and dealerships that offer in-house financing. The main trade-off? Higher interest rates. Some lenders may ask you for a co-signer as well.
Credit scores matter to most lenders because people with lower credit scores are seen as higher-risk borrowers. To cover this risk, lenders often offer less favourable terms—like higher interest rates or smaller car loan amounts.
What are alternative lenders?
Some lenders specialize in helping people with lower credit scores—and some even skip the credit check altogether. While the interest rates will be higher than what you’d find with a traditional bank or credit union, these lenders can make financing possible when other options fall short. They often have quick, easy applications, online approval, and more flexible terms and lower fees than traditional lenders. So, even with a lower credit score, you still have options to explore.
What is in-house financing?
Some dealerships offer in-house financing, meaning they can act as both the seller and the lender. This can be a convenient option, especially if your credit isn’t great, since you don’t need to search for a separate lender to finance your car. Dealerships also tend to have more flexible credit requirements than traditional lenders.
However, like with alternative lenders, the interest rate and fees are generally higher than what banks or credit unions offer, and sometimes they can be much higher. So, if you go this route, take your time, read the fine print, and make sure you understand the full cost before signing.
What does having a co-signer do?
If your credit score falls in the fair or poor range, getting a co-signer might be a good option. A co-signer—like a family member with good or excellent credit—applies for the car loan with you, which lowers the risk for the lender. This can boost your chances of approval and help you get a better interest rate. Just remember, if you can’t make the payments, your co-signer will be responsible for covering them, so make sure it’s someone you trust and have an honest conversation with them first.
Is there a minimum credit score requirement in Canada for getting a car loan?
Just like there's no magic number when it comes to the credit score you need to buy a car, there are no universal minimum credit scores for car loans in Canada. This is because each lender has its own requirements based on its risk tolerance and lending criteria. So, while you might need to shop around a bit to find a lender that fits your finances, you’ll usually have a few options to choose from.
If you’re applying for a car loan through a bank or traditional lender, they’ll generally want to see a good credit score, as they prefer borrowers with a strong payment history. But, as we've covered, alternative lenders and dealerships with in-house financing often have lower credit score requirements, making them more accessible if your credit isn’t perfect.
Even if you have no credit, buying a car might be a bit tricky, it’s definitely still possible. Lenders tend to view people with no credit similarly to those with poor credit, so you’ll likely need a co-signer, or you might need to go through an alternative lender or dealership with in-house financing.
Tips to help you buy a car with poor credit
If your credit score is under 660 and you’re worried about getting approved, focus on highlighting the strengths in your financial profile. Remember, many people with less-than-perfect credit still get approved for car loans. Here are some tips to consider:
Save for a down payment
Saving money for a down payment can really simplify the financing process. When you put some money down, the lender isn’t covering the full cost of the car, so they’re taking on less risk. This can sometimes mean better rates for you, as it shows you’re financially prepared. If your credit is poor, a down payment might not just be helpful—it could be required by some lenders before they approve your car loan.
Plus, having a larger down payment can work in your favour by lowering your monthly payments and possibly even snagging you a lower interest rate. For some lenders, it signals that you’re serious and may help offset the impact of a low credit score.
Show proof of financial stability
If your credit score is low, showing stability in other areas can make a difference. Bring recent pay stubs, proof of address, and details about your job history. Lenders like to see that you’ve been in the same job and residence for a while—it helps paint a picture of reliability.
Establish your car loan budget
Think about what you can realistically afford in a car—it’s easy to get tempted by something a bit nicer, but sticking to a budget is key. Set a clear spending limit and avoid car loans that push you past what you can handle monthly.
Explore your own financing options
While dealerships offer financing, it’s worth checking with your bank/credit union or other alternative lenders. You can also use an auto loan calculator and compare car loan rates online to see what’s available. Once you find a good option, getting preapproved can make the process much smoother when you’re ready to buy.
Work on improving your credit score first
Before buying a car, you might want to spend some time working on your credit score. Leasing a used vehicle could be a good option to start with, giving you time to improve your credit before committing to a full car loan. A higher credit score can help you secure lower rates when you’re ready to buy.
To start improving your score, check your credit report and dispute any errors you find. You can get a free credit report once a year from each of Canada’s three major credit bureaus: Equifax, Experian, and TransUnion. And remember, paying your bills on time is key—your payment history has the biggest impact on your credit score. But don't just make the minimum payments, you'll need to work on lowering your balances as well. Your goal is to have your credit utilization under 30 percent.
How to increase your credit score for a car loan
Worried your credit score might not meet the minimum requirements for car financing in Canada? Don’t stress—as we've explained, you’ve got options! However, if you'd like to increase your credit score beforehand, there are a few strategies to help you boost your score before applying, which can improve your chances of approval and help you qualify for better rates on your car loan:
Check your credit report
As we just mentioned, to start improving your credit score, take a close look at your credit report and dispute any errors you find. Your report contains all your credit details, and sometimes mistakes happen—credit bureaus might accidentally add incorrect information that could drag down your score. Reviewing and correcting these errors can help boost your score. In Canada, you can get a free credit report once a year from each of the three major credit bureaus: Equifax, Experian, and TransUnion.
Pay your bills on time
To build a strong credit score, make it a priority to pay all your bills on time. Missed payments can drag down your score significantly, so staying on top of them is key. To help with this, try setting up reminders or even automating your payments so you never miss one.
Lower your credit balances
It's not just about paying your bills on time. Paying down your balances as well is one of the best ways to boost your credit score. High balances can pull your score down, so aim to keep your credit utilization below 30%. This can make a big difference in improving your score. If needed, you might consider a personal loan to pay off some of your credit card balances, which can not only help with lowering your utilization rate but also with paying lower interest rates, as a personal loan tends to have a much lower interest rate than your credit card(s).
Increase your credit limits
Another way to lower your credit utilization ratio is by increasing your credit limits. Remember, credit bureaus look at what percentage of your available credit you’re using, so by increasing your credit limits—even if your balances stay the same—you’ll lower that percentage. So, you can try calling your current lenders to see if they’ll raise your credit limits. But only do this if you feel you won't be tempted to spend more on your credit cards once you have a higher limit.
Diversify your credit mix
Finally, your credit mix is all about having a variety of credit types on your report. If your credit profile lacks diversity, it can actually bring down your score. To improve this, consider adding a different type of credit, like a personal loan, to help boost your credit mix.
Don't forget about your car insurance
When buying a car, it's essential not to overlook the importance of car insurance. Car insurance not only protects your investment but also provides financial security in case of accidents or damage. Additionally, a good credit score plays a significant role in the car-buying process. Lenders often assess your credit score to determine your eligibility for a loan and the interest rates you'll receive.
When buying a new car, it's often a requirement that you have your car insurance already in place before you can even drive it off the lot. But while you may be paying higher interest rates on your car loan, that doesn't mean you need to also be making high payments on your insurance.
Contact BrokerLink Today
At BrokerLink, we’re here to make insurance easy. Our team will work with you to find personalized quotes and the best coverage to fit your needs and budget. We can also answer any car insurance questions you may have, like whether you should get optional collision or comprehensive coverage and if car insurance affects your credit score.
If you’d like to know more about auto insurance, feel free to reach out to your local BrokerLink advisor. You can connect with us by phone, email, or in person at any of our locations across Canada. Plus, check out our free online quote tool to get a competitive quote in just minutes!
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