What Credit Score is Needed For a Car Loan in Canada?

If you’re looking to buy a car in Ontario, one of the key things you’ll need to consider is your credit score. This three-digit number helps lenders decide whether they should lend you money and what interest rate to offer you.

 

Understanding the credit score needed for a car loan can help you plan ahead and know what to expect when you visit a dealership.

 

 

What is a Credit Score?

A credit score is a number that represents how well you handle credit, like loans and credit cards. In Canada, credit scores range from 300 to 900, with higher scores meaning you’re more likely to repay loans on time.

 

Lenders look at this score to decide if they’re willing to lend you money and what interest rate they’ll offer.

 

Here’s a breakdown of what different credit score ranges typically mean:

 

• 300–559: Poor credit
• 560–659: Fair credit
• 660–724: Good credit
• 725–759: Very good credit
• 760 and above: Excellent credit

 

The credit score needed for a car loan varies by lender and depends on factors like your income, current debt, and the type of car you’re buying.

 

What Credit Score Do You Need for a Car Loan in Ontario?

In Ontario, most dealerships and lenders prefer a credit score of at least 660 to approve a car loan with a reasonable interest rate.

 

With a score of 660 or higher, you’re considered a lower-risk borrower, which means you’re more likely to qualify for financing with better terms.

 

If your credit score is below 660, you may still qualify for a car loan, but it might come with a higher interest rate.

 

For example, a credit score in the 560-659 range could result in higher monthly payments or require a larger down payment.

 

Credit Score Needed for Different Types of Loans

• Prime Loans: If you have a credit score of 660 or above, you’ll likely qualify for a prime loan. Prime loans usually come with lower interest rates, which can save you money over the term of the loan.

 

• Subprime Loans: If your credit score is below 660, you may qualify for a subprime loan. While these loans are available to those with lower credit scores, they often come with higher interest rates. This means you’ll pay more over the life of the loan.

 

How to Get a Car Loan with a Lower Credit Score

If you’re worried about not meeting the ideal credit score needed for a car loan, there are still options. Here are some steps you can take:

 

• Save for a Bigger Down Payment: A larger down payment reduces the amount you need to borrow and can improve your chances of getting approved.

 

• Consider a Co-Signer: If someone with a better credit score is willing to co-sign the loan with you, it can increase your chances of approval.

 

• Look for Special Financing Options: Some dealerships offer in-house financing or work with lenders that specialize in subprime loans. This can be helpful if your credit score is low.

 

• Focus on Improving Your Credit Score: If you’re not in a rush, take some time to improve your credit score. Paying bills on time, reducing your debt, and checking your credit report for errors can help increase your score.

 

How Credit Score Affects Interest Rates

The credit score needed for a car loan directly affects the interest rate you’ll receive. Here’s how it usually works in Ontario:

 

• Excellent Credit (760 and above): You may get the lowest interest rates, possibly as low as 3-5%.
• Good Credit (660-759): Interest rates may range from 5-7%.
• Fair Credit (560-659): Interest rates can go up to 10-15%.
• Poor Credit (below 560): Interest rates can be 15% or higher, depending on the lender.

 

These interest rates are only estimates and can vary based on the lender, the type of car, and other factors. Remember, the lower your interest rate, the less you’ll pay in the long run.

 

How to Check Your Credit Score

In Canada, you can check your credit score for free from agencies like Equifax and TransUnion. Many banks also offer free credit score checks.

 

Knowing your score before you apply for a car loan can help you understand what to expect.

 

When you’re ready to buy a car, visit a reputable dealership that can guide you through your financing options based on your credit score. With the right approach, you can find a loan that works for you, no matter where you stand with your credit score.