600 Credit Score Car Loan Approval: What You Need to Know

When looking to buy a car, your credit score plays a huge role in the type of financing you can secure. In Canada, a credit score of 600 is considered below average but not terrible. While it might be harder to get favorable terms, you can still qualify for a car loan with a 600 credit score.

 

This article will break down what a 600 credit score car loan looks like, what you can expect, and how you can navigate this process through a dealership.

 

 

Understanding a 600 Credit Score

A credit score is a number that reflects your creditworthiness, ranging from 300 to 900 in Canada. A score of 600 places you in the “fair” category, which means lenders may consider you a higher risk when offering loans.

 

Most dealerships and lenders typically prefer scores above 660, which are considered “good” or higher. However, having a 600 credit score doesn’t mean you can’t get a car loan. It just means that your options might be more limited and your loan terms may be less favorable.

 

How Does a 600 Credit Score Affect Your Car Loan?

When you apply for a car loan with a 600 credit score, lenders will view you as a higher risk. As a result, here are a few things you should expect:

 

Higher Interest Rates

One of the biggest effects of a lower credit score is that you'll likely receive higher interest rates on your car loan.

 

Interest rates for car loans vary depending on your credit score, but with a 600 credit score, rates can be as high as 7% to 12% or more, compared to lower rates for individuals with higher credit scores. This means you'll pay more over time for the same vehicle compared to someone with better credit.

 

Shorter Loan Terms

Lenders may also offer you shorter loan terms when you have a 600 credit score. A shorter term can help reduce the lender's risk, but it also means higher monthly payments.

 

For example, instead of getting a loan for 72 months, you might be offered a loan for 48 or 60 months.

 

Larger Down Payment

To offset the risk, dealerships and lenders may require a larger down payment when you apply for a loan with a 600 credit score. A down payment of 10% to 20% might be needed to secure the loan.

 

A bigger down payment also reduces the amount you need to borrow, which can help lower your monthly payments and interest costs.

 

Smaller Loan Amount

Lenders might limit the amount you can borrow. With a 600 credit score, the dealership may not approve financing for a very expensive vehicle.

 

You might need to set your sights on a more affordable car or consider a used vehicle to fit within the lender's loan limits.

 

Getting a Car Loan with a 600 Credit Score from a Dealership

Now that you understand how your credit score impacts your car loan, let’s talk about the process of getting a loan from a dealership.

 

• Check Your Credit Score: Before visiting a dealership, check your credit score to confirm where you stand. Knowing your score can help you understand what kind of loan offers to expect.

 

• Prepare for a Down Payment: As mentioned, lenders might require a larger down payment if you have a 600 credit score. Make sure to save up enough money to cover this upfront cost. The bigger your down payment, the better your loan terms may be.

 

• Choose the Right Dealership: Not all dealerships work with people who have lower credit scores. Some specialize in helping individuals with fair or poor credit secure financing. Look for a dealership that has experience working with buyers in your credit score range. They may have relationships with lenders who are more willing to approve loans for individuals with a 600 credit score.

 

• Be Open to a Co-Signer: If you're struggling to get approved on your own, consider having a co-signer. A co-signer is someone with a better credit score who agrees to take responsibility for the loan if you can’t make payments. Having a co-signer can improve your chances of getting approved and securing a lower interest rate.

 

• Negotiate the Loan Terms: Don’t be afraid to negotiate. Even with a 600 credit score, there’s some room for discussion, especially if you have a sizable down payment or a co-signer. You might be able to negotiate a lower interest rate, longer term, or even better loan conditions. Dealerships want to sell cars, and they might be willing to work with you to make that happen.

 

• Consider Your Options: If the interest rates you’re offered are too high, you might want to consider other options. For example, you could delay the purchase to work on improving your credit score or look for a less expensive car to reduce the loan amount.

 

Tips for Improving Your Credit Score

If you're not in a rush to buy a car, working on improving your credit score can save you thousands of dollars in the long run. Here are a few tips:

 

• Pay Your Bills on Time: Late payments have a big impact on your credit score. Try to make at least the minimum payment on all your debts.

 

• Reduce Credit Card Balances: If you have credit card debt, try to pay down your balances. High credit utilization can lower your score.

 

• Don’t Apply for New Credit: Each time you apply for credit, it can temporarily lower your score. Avoid opening new accounts unless absolutely necessary.

Securing a car loan with a 600 credit score in Canada is possible, but it does come with certain challenges. Higher interest rates, larger down payments, and stricter terms are common. However, by working with the right dealership, saving for a bigger down payment, and possibly considering a co-signer, you can still drive away in the car you need.

 

Remember, your credit score isn’t set in stone. With a bit of time and effort, you can improve your score and qualify for better loan terms in the future.