Let’s face it, owning a car makes life a whole lot easier. Whether you’re single and need a way to get to work or you have a wife and four kids, owning a car will save you both time and stress. Unfortunately, many Canadians believe that their subpar credit score will stop them from getting approved for a car loan. The truth is, most Canadian’s with a monthly income of at least $2000 will be able to obtain a car loan despite their credit score.
While having a great credit score certainly helps to obtain better financing terms, it’s not a requirement to get car financing. In this article, we’ll talk about the minimum credit score required to get approved for financing, how better credit can get you a better loan, things to consider when evaluating lenders and give you some tips on how to improve your credit.
Minimum Credit Score Required to Get a Car Loan
Lenders see every borrower as a financial risk, this is why people with bad credit end up getting loans with higher interest rates. The high-interest rates make the level of risk worth it for the lender. Typically, lenders want to see their applicants have a credit score of around 600 for them to be willing to approve a car loan. Lenders are increasingly happy when the applicant has a credit score of 650 or higher, resulting in lower interest rates. Essentially, the better your credit score, the better financing terms you’ll qualify for.
There are some lenders however that prefer to only deal with applicants with good credit scores. Not to worry because there are plenty of alternative lenders and even car dealerships that work with Canadians with all types of credit.
Things to Consider When Evaluating Different Lenders
As discussed briefly earlier in this article, not all lenders are the same in terms of their credit score requirements. That being said, it’s your job to find a lender that will be willing to work with you based on your credit.
One thing that many borrowers tend to forget is that they have just as much of a right to get a good deal as the lenders do, so it’s important to be willing to look elsewhere if a lender isn’t willing to negotiate. If you really want to find the best lender possible, it’s important to ask yourself the following questions:
- Am I in a rush to get financing on a car or can I be patient?
- Do I have bad credit?
- Am I willing to shop around lenders until I find one that’s able to give me the best deal possible?
- What are my current and long-term financial goals?
- Does getting a car loan align with my financial goals?
How to Improve Your Credit and Get a Better Financing Deal
Before you apply for any type of loan, it’s important that you know your credit score. If your credit score is below 600, you should consider waiting to apply for a loan and taking some time to improve it. If you really want to get the best car loan terms possible, you should do some research on the car loan market and see what lenders are most suitable for you. If you’re able to wait on buying a car and improve your credit score, make sure you do the following:
- Check your credit score to see where you stand
- Pay off any outstanding debt you have
- Ensure there are no mistakes in your credit report, call the credit bureau if you believe there is a mistake and have it fixed
- Start/continue to make repayments in full and on time consistently
- Consider saving up for a down payment worth 10% of the vehicle’s sticker price
- Make a full budget around ownership, this means incorporating insurance, maintenance, fuel and any other costs!
Use a Car Loan Calculator
Using a car loan calculator is a great way to figure out how much you can afford for a car loan. Once you know where your credit stands, you should be able to estimate the interest rate you’ll be charged and plug it into the loan calculator.