Did you know that the average credit score in Canada is approximately 650? While this isn’t an awful rating, it doesn’t make you look like a stellar candidate in the eyes of certain lenders. There are certain credit scores for auto loans that you should keep in mind before purchasing a vehicle.
Although car financing with bad credit might seem difficult, we’ve put together a guide that can help you through the process. Let’s explore some of the key factors that you need to know.
So, What Is the Minimum Credit Score That I Need?
This is a difficult question to answer because there isn’t just one minimum credit score for auto loans. Lenders look at a variety of factors when considering an auto loan application, and your credit score is just one of them. That being said, most lenders will want to see a credit score of 600 or higher before they approve a loan.
If your score is below this threshold, you might still be able to get a loan, but you’ll likely have to pay a higher interest rate. In some cases, it might be worth putting off your car purchase until you are able to secure better terms for your loan. This is particularly true for those who are financially constrained at the moment.
What Else Do Lenders Look At?
In addition to your credit score, lenders will also consider your employment history, income, and overall debt.
They’ll also look at the type of vehicle you’re hoping to finance. If you’re looking for a luxury car, for example, you might need a higher credit score than someone who’s just looking for a basic sedan. Other factors lenders consider include your down payment, the length of the loan, and your repayment history.
How Can Using a Cosigner Benefit Me?
If you’re having trouble getting approved for an auto loan on your own, you might want to consider using a cosigner.
A cosigner is someone who agrees to sign the loan contract with you and becomes equally responsible for making the payments. This can be a great way to get approved for a loan if you have bad credit, but it’s important to remember that you’re putting your cosigner’s credit at risk.
What Is a Good Interest Rate to Aim For?
The average interest rate for a new car loan is currently around 4.5%. If you have bad credit, you might have to pay a higher interest rate, but it’s still important to shop around and compare offers from different lenders.
You might be surprised at how much rates can vary from one lender to the next. This is why it is so important for you to shop around from lender to lender. So, keep this in mind when moving forward, as it could potentially save you thousands of dollars over your payment period.
What About a Used Car Loan?
If you’re looking to finance a used car, you might be able to get a better interest rate than you would on a new car loan.
This is because lenders view used cars as less of a risk than new cars. To get the best interest rate possible for a used car loan, you’ll need to have a solid credit score and a steady income.
Am I Able to Refinance in the Future if My Credit Improves?
Yes, you can absolutely refinance your auto loan in the future if your credit improves. This can be a great way to save money on interest and get a lower monthly payment. If you keep your car for several years and your credit score improves, you might even be able to qualify for a 0% interest loan.
How Can I Improve My Credit Score?
If your credit score isn’t where you’d like it to be, don’t worry — there are plenty of things you can do to improve it. One of the best things you can do is make all of your loan and credit card payments on time.
You should also try to keep your credit card balances low. Maxing out your cards will hurt your score. Finally, try to avoid opening too many new lines of credit in a short period of time. If you do all of these things, you should see your credit score start to improve over time.
Can Putting Forth a Larger Down Payment Help?
If you’re having trouble getting approved for a loan, you might want to try putting forth a larger down payment. This will show lenders that you’re serious about the purchase and that you have the financial means to do so.
It might also help you get approved for a lower interest rate. So, if you can afford it, putting forth a larger down payment is always a good idea.
How Do I Find a Good Lender?
There are a few things you should take into consideration when searching for a lender for your auto loan. First, you’ll want to make sure the lender offers loans to people with your credit score.
You’ll also want to find a lender with good interest rates and terms. Finally, you should make sure the lender is reputable and has a good customer service record.
Credit Scores For Auto Loans Don't Have to Be Complicated
If you’re not sure whether or not you have the credit scores for auto loans, the best thing to do is talk to a lender.
They’ll be able to pull your credit report and give you an idea of where you stand. From there, you’ll be able to understand the best credit scores for auto loans that you should aim for if you are not currently meeting the necessary requirements.
Looking for more information about how we can help you in the future? Feel free to get in touch with us today to see what we can do.