Buying a car is a big deal in Canada. For most individuals, it is the second-largest purchase they’ll ever make – second only to purchasing a house. A 2017 CBC report stated that the cost of a new car in Canada was above C$33,000. And if you don’t have that kind of cash sitting in your savings account, then chances are you’d have to consider financing.
If you have bad credit, you already know that applying for a car loan won’t be a walk in the park. It’s okay to have questions. You’d like to know the minimum credit score to buy a car. You’d also like to see if you can still buy a vehicle despite your bad credit. You’ve come to the right place. Here’s all you need to know about the minimum credit score you need to buy a car in Canada.
How High is Your Credit Score?
The very first thing you’d need to do when you want to apply for a car loan is to figure out your credit history. That means you’d have to look at your credit report and credit score.
Your credit history is detailed information that captures all your financial transactions. It is a summation of all your business activities that’s as a result of reports from individuals and organizations who inform the credit bureau. Once you’ve figured out how to check your credit score, you can see if it’s good enough to take out a car loan.
What’s the Minimum Score?
Credit scores in Canada have a range between 300 – 900. 300 being the lowest and 900 the highest possible score. The minimum credit score to purchase a vehicle in Canada is within the range of 630 – 650. If you have a score within this range, you’d have to prepare your mind to pay higher interest than someone else with a better credit score.
The rule of thumb is; the higher your credit score, the better your rates and less money to spend on financing your vehicle. For those with a credit score below 630, there’s still hope. You can always get a car loan from lenders whose stock in trade is to finance investments for individuals with bad credit.
What do Car Dealers Look For In Credit?
Most lenders use your credit score to know whether they can take the risk of giving you a car loan. All lenders prefer to loan money to individuals they feel can pay back the loans without default.
However, to succeed with your car loan application, your credit score is just one requirement, amongst many others. Some other factors your lender might consider includes:
- Your employment history
- Your monthly debt in relation to your monthly income
- How large is your down payment towards the vehicle
That being said, there’s no consensus on the minimum credit score for a car loan. Some lenders specialize in working with individuals with poor credit. In contrast, traditional lenders like the Big Five prefer to work with individuals with an excellent credit history.
Getting the Right Lender
As you’ve seen above, car loan lenders have different requirements when they look at your credit score. While some prefer you to have an excellent rating, others can only work with you if you have a terrible score. Your job is to look for the lender who is willing to work with what you have. For you to get the most out of what you have, you need to answer the following questions:
- Are you in a hurry to get approval for your car loan?
- Do you have poor credit?
- Are you a stickler for convenience?
- Do you mind taking your time to shop for the best possible deal?
- Have you ever financed a vehicle loan, or is this your first car purchase?
- What are your financial goals in the short and long-term?
- Do your financial goals work well with the loan for a vehicle?
Getting a Car loan with a Bad Credit Score
What if your credit score is bad? Does that mean you can’t buy a car? Of course not! There are quite a few ways to prop up your score. These include:
- You are paying all your monthly bills in full and without default.
- Ascertain you aren’t using above 30% of the credit at your disposal. That means if you have C$20,000 available credit on your card, you need to keep your balance at C$6000 or below.
- Diversify your credit portfolio. That means a credit card, personal loan, or a mortgage.
- Have a budget, and do not go beyond it. Your budget should cover the cost of the car, your loan payments, as well as car insurance.
It’s important to know that boosting your score is no quick-fix. It takes a bit of time before you notice any improvement in your credit score. A quicker option may be to work with a lender who doesn’t need to see your credit score to give you a car loan. However, there’s a chance you’d pay higher in fees.
It doesn’t matter what type of vehicle you need; whether it’s a minivan or a sedan, owning your vehicle is part and parcel of what it means to live in Canada. That’s the reason you need to find the right car loan for your needs. Healthy credit history goes a long way in securing the best rates. But that’s not all there is to it.
Many Canadians have bad credit and still manage to finance their vehicles. The important thing for you to do is to get the right lender who is willing to offer you financing at a rate you can afford.