Log In
Sign Up

What Credit Score Do You Need for a Car Loan?

Gaurav Pokharel

Feb 27, 2021 7 min read

Share on Facebook
Share on Twitter
Share on Linkedin
What Credit Score is Needed for a Car Loan?
Article Contents

    In the market for a new set of wheels? Looking to buy your first car? Not sure what credit score you need for a car loan? When it comes to providing car loans, Canadian lenders typically approve consumers with a credit score of 630 or above. 

    630 is the magic credit score number to have when applying for a car loan.  However, if your credit score is lower than 630, there are still several options and approaches for you to consider! 

    Read on to learn more about how your credit score influences your ability to get a car loan, along with concrete steps you can take to increase your chances of getting a car loan and receiving great offers.

    How do Credit Scores Influence Car Loans?

    Your credit score is an invaluable part of your financial status. Knowing what your credit score is and how it impacts your ability to find a car loan is important.

    When you apply for a car loan or financing, lenders look at your credit score to assess your financial health. They want to know that you can make your regular car loan payments on-time. A good credit score shows lenders that you’re a responsible borrower who can successfully manage credit products and repayments. 

    Your credit score will directly impact your chances of getting approved for a car loan. It will also influence what interest rates, financing terms, and other beneficial offers you qualify for. The higher your score,  the better your chances of qualifying for the best rates and offers.   

    Typically, most lenders will evaluate a consumer’s credit score using the following labels:

    • Excellent – credit scores between 741–900

    • Good - credit scores between 713–740

    • Fair - credit scores between 660–712 (this range includes the average credit score in Canada)

    • Below Average- credit scores between 575–659

    • Poor - credit scores between 300–574

    If you have a fair credit score between 660 and 712, you’ll be approved for many car loan offers. If you have a good or excellent credit score above 712, you’ll have higher approval chances, get quicker approvals, and be eligible for more attractive car loan offers.

    If you have below average credit between 575 and 659, your car loan options may be more limited. If you have poor credit below 575,  you’ll have trouble getting approved for regular car loans. You may need to find a lender that specializes in working with individuals with poor credit. 

    Your credit doesn’t only impact your approval chances. Your credit score also impacts the interest you’ll have to pay. Consumers with good or excellent credit scores will qualify for lower interest rates than other consumers. For example, a consumer with an excellent credit score rating may qualify for a 4% interest rate when looking to buy a new car, while a consumer with a below average credit score would only qualify for an interest rate around 11% for the exact same vehicle. Over time, the costs associated with this type of difference in interest accumulates very quickly.

    Car Loan Rates

    Can I get a Car Loan if I have Bad Credit?

    Yes, it’s possible! While getting approved for a car loan with bad credit can definitely be challenging and will require patience, there are several options that you can consider.

    There are several lenders and car dealerships in Canada that focus specifically on helping consumers with bad credit scores find a suitable car loan for their needs. These types of lenders will work with you and consider additional factors such as your income when assessing your ability to qualify for a car loan. 

    Other options you can consider include getting a used vehicle, making a down payment to lower your monthly costs, and using a co-signer to share responsibility of the loan.

    Want to see what car loans you qualify for?

    Check your credit score with Borrowell and instantly see what lenders you qualify with. Compare car loans and instantly see your approval chances before applying for one.

    Get Your Free Credit Score

    Refinancing Your Car Loan After Improving Your Credit

    If your financial circumstances have improved since you first took out a car loan, refinancing your car loan is a great option to consider. Refinancing is when you replace one loan with another loan that has more favourable terms. Refinancing your car loan could save you money by securing a lower interest rate and reducing your monthly payments by extending your loan terms.

    Your current car loan may be helping you build your credit score, but if you had a low credit score to begin with, you’re likely paying a high interest rate. If your credit score or income has improved since you took out your car loan, now’s a good time to start shopping around for a better car loan. With an improved credit score, there’s a good chance that you can qualify for a lower interest rate. Refinancing your car loan could help you lock in a lower interest rate and save money.  

    As part of your refinancing agreement, you may decide to opt for a longer-term loan period and reduce your current payments. While a great option to reduce monthly payments, it is important to note that this could result in more interest being paid over time. Unlike a home, a car loses value over time, so we highly recommend ensuring that you have a sound financial plan for how you will repay the longer-term loan.  

    If your car is worth more than the balance left on your loan, you may be able to dip into that equity and get cash back. Essentially, this is borrowing against the equity you have in your vehicle. The process of refinancing is like buying your vehicle all over again, which means you’ll need to qualify. The lender will assess things like the condition of your vehicle, the size of your loan, your credit score, your debt-to-service ratio, your current interest rate, and the length of your loan.

    Ultimately, if your income-to-debt ratio and credit score have improved, you should strongly consider refinancing to qualify for a more accommodating car loan arrangement. Just remember that refinancing your loan could temporarily lower your credit score, as your lender will perform a hard credit check when reviewing your new car application.

    bad credit car loans

    How do I Increase my Chances of Car Loan Approval?

    To increase your chances of getting approved for a car loan, it will be critical for you to research the car loan market in detail, finding out about the types of lenders you’re most interested in working with, and how their terms and options fit with your financial needs.  

    If you have a bad credit score, have insufficient credit history, or are simply unsure whether you will qualify for a car loan approval, we recommend the following options:

    • Get a co-signer

    • Make a bigger down payment

    • Shop around for better deals

    • Improve your credit score

    Get a Co-signer

    A co-signer is someone who has agreed to pay your car loan debts if you default on the loan or are otherwise unable to make payments. Typically, co-signers fall into the good or excellent credit score categories and have good credit standings, along with a reliable payment history. 

    When getting a co-signer for a car loan, however, it is very important to weigh its pros and cons. Carefully assess the impact on your relationship with the co-signer should you default, the responsibilities of the individual co-signing, the terms associated with the car loan, and the potential impact of the new loan on the co-signer's credit score.

    new car loan

    Make a Bigger Down Payment

    Providing a bigger down payment as part of your car purchase can significantly increase your chances of getting approval for a car loan. Paying upfront will also decrease the overall purchase and borrowing amount, which will lower both the amount of interest paid on the loan, as well as the monthly amount to be paid for the loan.

    Shop Around for Better Deals

    Finding the right lender is half the battle when shopping for car loans! If you have not found a rate and loan term that feels right for you, we encourage you to continue exploring your options. You can sign up for Borrowell to check your credit score for free and instantly see what car loans you qualify for. Get personalized car loan recommendations based on your unique credit profile, and find the best interest rates and terms that meet your financial needs.

    higher credit score

    Improve your Credit Score

    Lastly, improving your credit score can have a drastic impact on your chances to qualify for a car loan. There are several steps you can take to improve your credit score. These tried-and-true methods include paying your bills on time, lowering your credit utilization rate, and diversifying your credit mix.  By following these recommendations and taking action, you can qualify for much more favourable interest rates and pre-approvals from lenders. Improving your credit score can help you qualify for the car you always wanted!

    Gaurav Pokharel
    Gaurav Pokharel

    Gaurav is a senior communications consultant in the executive recruitment industry, focusing on financial services. He enjoys creating educational content related to credit health and personal finances for Borrowell. Gaurav has a passion for conveying complex messages in an impactful way, and graduated with Honours from the University of Waterloo with a degree in Rhetoric and Professional Writing.

    Article Contents