When buying a car, you may come across the term “OAC”. This stands for “On Approved Credit”, and means that the loan terms ultimately depend on your creditworthiness.
Lenders assess your credit score, income, and financial history to determine if you qualify for a loan at specific advertised loan terms, including the interest rates. Understanding OAC can help you set realistic expectations about applying and getting approved for car financing.
Key Points
| OAC Stands For | “On Approved Credit” |
| OAC Meaning | OAC means that qualifying for the specific terms is based on your creditworthiness. |
| OAC Approval | OAC financing approval is not guaranteed and depends on your credit score, income, and debt-to-income ratio. |
| How To Increase Approval Odds? | To increase your chances of getting approved for OAC financing, improve your credit score, make a larger down payment, and lower your debt-to-income ratio. |
OAC Meaning When Buying A Car
The term OAC stands for “On Approved Credit”. This means that any financing offers, such as low interest rates or special promotions, are only final for consumers who meet the lender’s loan criteria.
In other words, you’ll likely need to have a good credit score, strong income, and steady employment to actually qualify for the lender’s advertised terms.
If your financial or credit profile is not strong, you may not qualify for the advertised terms, and may instead be offered a higher interest rate, less favourable terms, or be subject to additional conditions.
Where Does The Term OAC Pop Up?
The term OAC comes up frequently when you peruse vehicles through dealerships, which use this to attract car buyers and highlight the most competitive rate available for a vehicle.
It enables them to draw attention to low prices, while subtly noting in the fine print that the offer is contingent on your creditworthiness.
When you see a car dealership advertise a vehicle price or financing deal with the term “OAC,” it means that the deal is conditional upon the car buyer’s credit approval.
How Does OAC Work?
With OAC, the dealership will set certain credit criteria which the borrower must meet to be approved for the loan or offer.
Generally speaking, requirements to qualify for the OAC rate include a strong income, a steady job, and a high credit score. If you can meet the lender’s OAC requirements, their in-house financing can offer competitive rates that make vehicle financing more affordable over the long term.
You can find out if you’re creditworthy enough to meet the lender’s requirements by checking your credit score. You can do this through the credit bureaus, your bank, or through an online third-party service, like Loans Canada’s CompareHub.
How To Qualify For OAC Financing?
To qualify for OAC financing, you’ll need to have the following:
A Strong Credit Score
In order to be accepted for OAC financing, the dealership will run a credit check to find out your credit score. If you have solid credit, then you’ll be more likely to qualify for OAC financing. However, if your credit is subpar, then it can be more challenging to access this financing.
The exact credit score you need will depend on the lender, though a score of at least 660 — which would put you in the ‘good credit’ category — is a typical minimum threshold.
Stable Income And Employment
Lenders require proof of steady income, which you can show with documents like pay stubs, tax returns, or bank statements going back far enough. This ensures that you can afford your monthly car loan payments.
Debt-To-Income Ratio
Your debt-to-income ratio is a measure of your monthly debt relative to your gross monthly income. This metric is used by lenders as a way to determine if additional car loan payments will be too much for you to financially handle.
Generally, a ratio of 44% or higher is a red flag for lenders and would reduce your chances of qualifying for OAC financing. On the other hand, less than 44% can boost your odds of approval.
Essentially, applying for a loan amount that your income and financial situation can comfortably handle can increase the likelihood of loan approval.
High Down Payment
Some lenders offer zero-down financing, but just like a mortgage, putting some money upfront towards the purchase price of the car can reduce the lender’s risk and increase your chances of loan approval with OAC financing terms.
More specifically, a down payment of over 10% to 20% can boost your chances of securing a lower interest rate.
Documents Required For OAC Financing
Lenders typically require the following documents to assess your application for OAC financing:
- Proof Of Identity: A government-issued ID, such as a driver’s license or passport, will be required to verify your identity.
- Proof Of Residency: To prove that you’re a resident of Canada, you’ll be required to show a document with your name and address, such as a utility bill or property tax bill.
- Credit Report: Lenders typically conduct a hard credit check to verify your creditworthiness.
- Income Documentation: You must prove your income by showing a recent pay stub, notice of assessment, or bank statements.
- Employment Letter: Lenders may want to see something from your employer showing where you work, what your role is, and how long you’ve been an employee.
How To Improve Your Chances Of Getting OAC Financing?
To boost your odds of getting approved for advertised OAC financing terms, consider the following.
Improve Your Credit Score
As noted, a high credit score is typically a requirement for OAC financing. If your score is lagging, take some time to give it a boost. You can do this by making all bill payments on time, keeping your credit card balances low, and using credit-building products, like Nyble or KOHO.
Pay Off Your Debts
Not only does paying down your debt alleviate your financial burdens, but it also lowers your debt-to-income ratio. The less debt you have to pay relative to the income you earn, the more creditworthy you’ll seem to the lender.
Increase Your Down Payment
Reducing the total loan amount by making a larger down payment can lower the lender’s risk and therefore make you more likely to qualify for OAC financing terms. A bigger down payment, and subsequently a smaller loan amount, also means lower monthly payments.
Choose The Best Time To Buy A Car
Dealerships are known for offering the best rates at the end of the month, and especially at the end of the year. Because of the need to free up floor space and make quotas, you may be more likely to get OAC financing at a special rate.
Learn more: Best Time To Buy A Car In Canada
Common Misunderstandings About OAC Financing
Some car buyers may have certain misconceptions about OAC financing. Here are a few of the more common misunderstandings about OAC financing and the truths behind them:
- Myth #1: OAC Financing Is Available For Everyone. This is not true. Only those who meet the lender’s credit requirements can qualify for OAC financing terms.
- Myth #2: Low Advertised Rates Apply To All Borrowers. The low rates that the dealer advertises are meant only for buyers who have strong credit and income criteria. If you don’t meet the lender’s criteria on creditworthiness, you may be offered a higher interest rate.
- Myth #3: OAC Means Zero Down Payment. While some deals may allow no down payment, others may still require money upfront.
Final Thoughts
If you can get approved for OAC financing, you’ll benefit from lower rates and better loan terms. Just make sure you understand that when you see specific financing terms advertised by dealerships, they may be conditional on your creditworthiness. Be sure to compare your loan options and check your credit score to see if you can qualify for OAC financing.
