When applying for a car loan in Canada, your credit score is an important piece that drives your options for financing. For most traditional lenders, a score of 660 or higher may be required for approval, but even with bad credit, you’ll still have some options.
Key Points
- Having good credit is generally a requirement to get a car loan in Canada.
- Those with bad credit may still be able to secure a car loan, though they may have to apply with an alternative lender and pay a higher interest rate.
- Generally speaking, a credit score of at least 660, which is considered ‘good’ credit in Canada is needed to get a car loan.
- Lenders also look at other factors besides credit, such as your income, debt, and down payment.
What Credit Score Is Needed For A Car Loan?
When trying to determine what credit score you’ll need for a car loan, the short answer is, it depends. First of all, let’s take a look at the general credit scoring ranking system here in Canada:
- Poor: 300 – 559
- Fair: 560 – 659
- Good: 660 – 724
- Very Good: 725 – 759
- Excellent: 760 – 900
If your credit score is good — which would be considered within the range of 660 to 724 — you’ll generally have no trouble qualifying for a car loan with most lenders. Anything above 724 can help you get access to the most competitive loans available, which are those with the lowest interest rates and most favourable terms, as well as access to higher loan amounts.
However, if your credit score is fair or poor, your options for lenders and loan products will be limited. The good news is that some lenders specialize in providing loans to consumers with lower credit scores.
Additionally, lenders do not evaluate loan applications solely based on your credit score. Other factors, including your income and employment history, are usually relevant.
Is There A Minimum Credit Score For Car Loan In Canada?
There’s no universal minimum credit score required to get a car loan in Canada. Instead, different lenders will have distinct requirements based on their risk tolerance and lending criteria.
That means that while you may have to shop around a bit to find a lender that suits your finances, you’ll almost always have at least a few lenders to choose from.
When applying for a car loan through a bank or traditional lender, you’ll generally need a good credit score, as banks prefer to lend to borrowers with a strong payment and credit history.
On the other hand, alternative lenders and dealerships that offer in-house financing can have lower minimum credit score requirements.
Can You Get A Car Loan With Bad Credit?
It is possible to get a car loan with bad credit. In Canada, bad credit is usually anything that falls below 560. While you will still have options if your credit is fair or even poor, there are trade-offs to be aware of – primarily, significantly higher interest rates.
Credit scores are crucial for most lenders, as consumers with poor credit are considered ‘higher risk’ financially. To mitigate the risk of loan default, lenders provide less favorable loan terms, such as higher interest rates or smaller loan amounts.
But as mentioned, having bad credit doesn’t mean you’re totally out of options. There are still ways to secure a car loan, mainly through alternative lenders and dealerships that offer in-house financing.
Learn more: Bad Credit Car Loans In Canada
In-House Financing
Those with lower credit scores might also consider finding a dealership that offers in-house financing.
Some dealerships will act as both the seller and the lender, and in many cases will allow you to secure a car loan directly from them, even if your credit is poor. The primary benefit of in-house financing is its convenience since you don’t have to go and find a third-party lender to finance your car. This is on top of the fact that dealerships are often more accessible compared to traditional lenders when it comes to minimum credit requirements.
That said, as with other alternative lenders, interest rates and fees will be higher than loans offered by banks or credit unions. And in some cases, rates and fees can be significantly higher, so it’s important to take your time and read all the fine print.
Alternative Lenders
There are lenders that specialize in offering loans to people with lower credit scores, and some don’t even require credit checks. While the interest rates with these lenders will be higher compared to a conventional loan from a bank or credit union, they can still provide access to financing when other lenders won’t.
| Amount | Interest | Term (Months) | ||
|---|---|---|---|---|
 | $500 - $50,000 | Up to 35% | 12 - 84 | Learn more |
 | $7,500+ | Varies | 24 - 96 | Learn more |
 | $500 - $35,000 | Starting at 29.99% | 9 - 60 | Learn more |
 | $500 - $10,000 | 12.99% - 34.99% | 9 - 60 | Learn more |
 | $5,000 - $40,000 | Varies | 12 - 72 | Learn more |
 | $5,000 - $45,000 | 4.90 % - 29.95% | 36 - 72 | Learn more |
 | Varies | 11.9% + | 12 - 84 | Learn more |
 | Up to $50,000 | Varies | 12 - 84 | Learn more |
Other Factors Lenders May Look At When Offering Car Loans
While your credit score plays a significant role in loan applications with traditional lenders, others place a greater emphasis on different factors. Bad credit lenders work specifically with consumers who have lower credit scores, and they look at a few different elements to weigh in on the approval process:
Income And Employment
Many alternative and bad credit lenders will prioritize your income when assessing a car loan application over your credit score, as this information can provide a reliable picture of your ability to make repayments. A steady employment record and a reliable source of income can help offset a lower credit score in the eyes of some lenders.
Debt-To-Income Ratio
Lenders often look specifically at your debt-to-income (DTI) ratio, as opposed to just your income. This figure measures how much of your income is committed to paying down existing debts. A look at your DTI can help determine if you can comfortably take on more debt with a car loan.
A lower DTI ratio shows that you are capable of managing debts responsibly and that you’re not in the habit of taking on more debt than you can reliably pay off.
Down Payment
When applying for a car loan with poor credit, your down payment can also play a significant role. If you can come up with a larger down payment, that will in turn reduce the total amount you need to borrow. It also demonstrates to a lender that you’re serious about your financial investment. For some bad credit lenders, this can be a particularly useful approach.
What Credit Score Is Needed For No Down Payment On A Car?
Zero down payment car loans are available in Canada, even for those with bad credit. Generally, when you’re applying for a no-down payment car loan, your credit score will be a crucial factor.
Given that a good to excellent credit score will signal to lenders that you’re financially responsible and less likely to default on the loan, the possibility of a zero down payment loan is more plausible for those with good credit.
That said, you may still be able to secure a no down payment car loan with a bad credit score. However, the rates you get will likely be higher. Moreover, to secure a no down payment car loan with bad credit, you’ll need to show proof of a steady income and may need a cosigner with a higher credit score to sign the loan contract.
What Credit Score Is Needed For A 50k Car Loan?
To qualify for a $50,000 car loan, lenders will generally be looking for a good credit score (i.e. in the range of 660 or higher). However, other factors will also play a role, such as your income and down payment.
While a good credit score can help you secure a loan to the value of $50,000, it’s worth remembering that you could still qualify with a score that falls short of this, albeit with a higher interest rate and potentially less favourable terms.
What Credit Score Is Needed For A Car Loan, Without A Cosigner?
To secure a car loan without a cosigner, lenders will be looking for a credit score of at least 660. With good credit or higher, you’ll have better odds of landing a competitive car loan from a bank or credit union, even without a cosigner.
However, if your credit score falls below 660, there are still some online and alternative lenders who may offer you a car loan without a cosigner.
In such cases, lenders will put more emphasis on your income, debt, and down payment amount to offset the higher risk of lending without a cosigner.
If you’ve got a bad credit score, you can improve your chances of being approved for a loan without a cosigner by saving up for a bigger down payment or buying a cheaper vehicle. Otherwise, if you have time, consider taking steps to improve your credit score first.
Why You Should Check Your Credit Score Before Applying For A Car Loan
Before applying for a car loan, you may want to check your score first. Here are a few reasons why:
| Your Credit Score Affects Your Chances Of Loan Approval | Lenders look at your credit score to assess your creditworthiness. A higher score can increase your chances of approval, while a lower score could reduce approval odds. If you have bad credit, you may choose to apply with an alternative lender. |
| Your Credit Score Affects Your Interest Rate | Generally, higher credit scores tend to come with lower interest rates, making your loan more affordable. But lower scores tend to give you higher rates, making your loan more expensive. |
| Your Credit Score Can Affect Your Loan Terms | If you have good credit, you’ll likely be offered more favourable loan terms, such as a longer term or lower monthly payments. With bad credit, your loan terms may not be as flexible or favourable. |
Learn more: Car Loans 101: Check Your Credit Scores First
How To Increase Your Credit Score?
Increasing your credit score, and keeping it healthy, can be done over time. Here are some foundational tips that can help you bring your score up:
Pay Your Bills On Time
Payment history is the most significant factor in determining your credit score, which is why paying off your bills on time and in full is the most essential habit for improving your score.
Reduce Your Credit Card Balances
Another big factor in your credit score is your credit utilization ratio. This is the amount of credit you use regularly, relative to your limit. It’s ideal to try and keep your balances below 30% of your credit limit. For example, with a credit limit of $2,000, a strong credit utilization ratio would be no more than $600.
Avoid New Credit Applications
When you apply for a new credit card or a traditional loan, your credit will suffer temporarily from a hard inquiry. However, too many hard inquiries in a short period can make it harder for your credit score to recover.
Check Your Credit Report For Errors
One best practice for good credit is to review your credit report at least once a year. That’s because there may be inaccuracies or fraudulent activities that could be dragging your score down. Any errors can be disputed, and if successful, they can help boost your score.
Keep Old Accounts Open
The duration of your credit history is also a factor in how your credit score is calculated. That’s why keeping older accounts open is recommended, even if you don’t use them that much.
Learn more: How To Improve Your Credit Scores
Bottom Line
While there are no hard and fast rules around minimum credit scores for a car loan in Canada, generally speaking, the better your score is, the more access you’ll have to the best rates and terms. That being said, you may be able to secure a car loan with fair or poor credit by making a bigger down payment, paying down some of your debt first, or proving a sufficient income.
