You need to have a good credit score when it comes to getting auto finance in Canada. You might have heard from other people that getting a car loan is becoming even harder than it was before.
All the lenders have become choosier about the customers who are being given credit, and mostly those with good credit scores get the approval.
So, today, we’ll help you understand what a good credit score for auto finance in Canada is and how you can achieve it to buy that car you’ve wanted for quite some time. Let’s get started:
How Do Credit Scores Impact Auto Finance in Canada?
A credit score is an indication of how likely you are to pay back your loans on time. When you apply for a vehicle loan, the lenders look at your credit score and decide whether or not to loan you the money.
Having a good credit score establishes your credibility in the eyes of lenders and shows them that you’re a responsible borrower who’ll pay back on time. Furthermore, your credit score also influences your loan’s interest rates and finance terms. A good score means a lower interest rate and longer term. In Canada, the credit score ranges from 300 to 900; here’s how it’s classified:
- Credit scores between 741 and 900 = Excellent
- Credit scores between 713 and 740 = Good
- Credit scores between 660 and 712 = Fair
- Credit scores between 575 and 659 = Below Average
- Credit scores between 300 and 574 = Poor
According to Equifax, lenders typically see credit scores over 660 as acceptable and consider such borrowers as low-risk.
This doesn’t mean you cannot get approved for a loan if you’re below 660; it just means that having a score above 660 opens doors to most options for auto finance in Canada with lower interests and better terms.
How to Increase Approval Chances of Car Loans with Bad Credit Score?
If your credit score falls below average or poor, you may still be approved for a loan, but your chances will be pretty slim. To increase your odds, we suggest you consider the following:
- Co-Signing: You can ask a friend or family member to co-sign with you when getting a car loan. This will increase your chances for approval but only do this if you’re sure you can make timely payments because the co-signer will be taking your responsibility.
- Bigger Down Payment: You can put some more money into the down payment fund, which will reduce the overall loan amount, which means lower risk for lenders.
A good credit score for auto finance in Canada ranges from 660 to 740 but if you’re below this range, then try to get approved using the tactics we mentioned above. Then, immediately start rebuilding your credit score and when it’s under this range, apply for refinancing to replace your current loan with another loan having a lower interest rate and longer repayment term.