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Approximately 26.2 million road vehicles are registered in Canada. They’re essential for travel, commuting, and getting groceries. But buying a car can be expensive, and you’ll likely need financing. During your hunt for the perfect car (and price), you’re likely to encounter some industry-specific jargon like the term OAC and wonder what the meaning is. We gave your back with everything you need to know about OAC. 

OAC Meaning When Buying A Car

Vehicle financing terms can be overwhelmingly technical, especially when you’re trying to track down a competitive rate. One of the most common terms you’ll encounter is OAC (on approved credit).  Understanding this phrase and how it plays into the automobile financing industry can help you save time and money. 

Where Does The Term OAC Pop Up? 

The term OAC is shorthand for the phrase, “On Approved Credit”. It comes up frequently when you peruse vehicles through a dealership. Whether you’re looking at new vehicles in person or searching for used cars online with a retailer like Clutch. When you’re looking through vehicles and you see those enticingly low-interest rates, check for OAC requirements. Dealerships use this to highlight the most competitive rate available for a vehicle. It enables them to draw attention to low prices, while subtly noting that the cost is contingent on credit. When dealerships offer to finance, they typically disclaim that it is OAC, meaning you must meet their credit standards to access that car loan. 

How Does OAC Work? 

On Approved Credit works exactly like it sounds. The dealership will set certain credit criteria which the borrower must meet to be approved for the loan. Now, the credit qualifications differ from dealership to dealership. However, you can save time by checking your credit. Generally, if your credit score is in good shape, along with your finances. You’ll have a high chance of qualifying.

That said, if you are able to meet the requirements, in-house financing can offer impressive rates that make cars more affordable over the long term. 

How To Qualify For OAC Financing?

In order to qualify for OAC financing, you must meet the criteria of the dealership from which you are aiming to purchase a car. Some set the criteria to credit scores over 750 with a low debt-to-income ratio. Other dealers will make loans more accessible, lowering the threshold and offering a few approaches to obtain OAC financing. To get started with OAC financing, there are some standard expectations. Understanding these helps you prepare. 

A Reasonable Credit Score

In order to be accepted for OAC financing, the dealership will run a credit check to look for red flags. If you have solid credit, then it should not be an issue. However, if your credit is subpar, then it can be more challenging to access this financing. Be sure to check your credit before applying for OAC financing.

Special Offers And Deals

There are, in some situations, special offers on vehicles. The lower price can allow you to access the financing whereas a higher sticker price would preclude it. 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, this is when you are most likely to get O.A.C financing at a special rate. 

Look For A Cosigner 

If you are unable to get the loan through the dealership independently, you can opt for a cosigner. In keeping with the standard protocols for cosigning a loan, this means that both parties (you and your cosigner) are fully responsible for the loan. This makes you a much safer borrower in the eyes of the lender, especially if the cosigner has good credit and little debt.

Debt-To-Income Ratio

This is a common calculation used by lenders as a way to determine if you are actually able to make the payments. Lenders will use your pay stubs, bank statements and credit reports to assess your debt-to-income ratio. Each dealership may set a maximum ratio. If your ratio goes above it, they may assume that you don’t have enough liquid funds to pay the loan each month. 

For example, person A earns $3,000 per month, pays $1,000 in mortgage payments and $500 in other loans. Person A has a debt-to-income ratio of 50%. Person B earns the same salary and pays $500 in mortgage payments and $500 in other debt. Person B has a debt-to-income ratio of 33%. That means Person B has 17% more liquid funds to pay the to-be car loan and is thus more likely to qualify for O.A.C financing. 

How To Find The Best Car Loan In Canada

AmountInterestTerm (Months)
Loans Canada Logo - Bad Credit Loans Canada$500 - $50,000Up to 46.96%12 - 84Learn more
ClutchVaries8.49% +24 - 96Learn more
Canada Drives$500 - $35,00029.99% - 46.96%9 - 60Learn more
SkyCap Financial$500 - $10,00012.99% - 39.99%9 - 36Learn more
Carloans411$5,000 - $40,000Varies12 - 72Learn more
Canada Auto Finance$5,000 - $45,0004.90 % - 29.95%36 - 72Learn more
Eden ParkVaries11.9% +12 - 84Learn more
Splash Auto Finance by RifcoUp to $50,000Varies12 - 84Learn more

How Do Car Dealerships Check If You Qualify For OAC?

Determining whether you qualify for an OAC financing agreement takes little time and is generally straightforward. 

  1. The dealership uses your Social Insurance Number (SIN) to do a credit check. Because it is for a vehicle loan, these are hard credit checks. The dealership will usually fund the number through Equifax or TransUnion. Alternatively, they can use several services available to businesses. 
  2. Using your credit profile. The dealership determines your risk factor as a potential borrower. This is done using an algorithm (set of equations). It checks for things like missed payments, bankruptcies, liens, and debt levels. It also can factor in the duration at which you’ve been at an address, other credit inquiries, and how you manage your utility bills. 
  3. Next, the dealership takes your banking information and may request references from your employer. This is meant to lend assurance that you are not likely to lose the job during the term of the loan. It also indicates how much you earn. This is used, in conjunction with your credit profile, to determine your income-to-debt ratio.
  4. Depending on the dealership, the requirements will differ. Each lender is simply trying to determine if you are able to repay the loan per the terms. Assuming you are, you receive approval. Otherwise, they will inform you that you don’t qualify and you can take the next steps to ensure your access to other financing. 

How To Ensure You Get OAC Financing?

The best way to make any financial move is to plan it out in advance. Sure, if your engine breaks down, you may need to maneuver more quickly. However, most vehicle purchases result from an aging car, a desire to upgrade, or the lack of a vehicle. In the majority of these situations, you can take the time to ensure that you get optimal financing rates. Follow the same steps as you otherwise would to become a more desirable borrower. 

Grow Your Credit Score

For every utility bill or loan reported, there is a record held by Equifax and TransUnion. These companies issue a three-digit score that represents your credit. Used to assess your credibility as a borrower. The higher the score, the more likely you are to make your payments on time. Consider adopting these healthy credit building habits. Make your payments on time, always. Avoid letting debt build and don’t max out your credit cards every month. 

Pay Off Your Debts

Though the term ‘good debt’ has entered the zeitgeist, debt by any other name is still money you owe that gathers interest. Showcasing your ability to pay off a loan prudently highlights your merit as a borrower. Another major benefit to this is increasing your income-to-debt ratio. By having smaller monthly payments due, you are better qualified for OAC financing. 

Increase Your Down Payment

An easy way to access financing is to reduce the total loan amount. This results in smaller payments, therefore requiring a lower income-to-debt ratio. It saves you from paying more interest in the long term. If financially feasible, is one of the quicker and more profitable ways to access OAC financing. 

Find A Suitable Cosigner

You cannot rely on a cosigner with low credit or a high debt-to-income ratio. A cosigner is there to add value to you as a borrower and must qualify for the OAC financing. Provided you have a cosigner, they are equally responsible for the full payment of the loan.

Final Thoughts 

It’s no secret that OAC financing is desirable. If you have the time to plan out your moves, you can see significant savings. Establish a budget with the goal of reducing debt while saving for a down payment. Research different dealerships, and check for special rates, discounts, and available deals. Each end-of-month and major holiday comes with its own perks, if you can wait for these opportunities to make your move. 

Finally, be sure to investigate all your options. Take a look at the available lenders and see how you can make your money work best for your needs. There are many ways to get ideal terms on your car loan, with OAC financing being one of the most popular. As long as you put in the time and effort, it is well within reach. 

FAQs About OAC Financing

Can I get OAC financing if I have bad credit?

You can get vehicle financing with bad credit. However, you cannot get optimal OAC financing rates. The term literally means on approved credit. The company cannot approve you for those terms without the referenced approved credit. Take steps to improve your credit to access those preferred terms. Alternative lenders are available if you are in urgent need, but they charge higher rates.

Do I need to get pre-approved for OAC financing?

It’s possible to get pre-approved for OAC financing and can save you significant time and effort. Armed with the knowledge of what loans you qualify for, you can streamline the hunt for a vehicle. Keep in mind that each dealership does its own OAC check. Pick the dealership first, then get pre-approval.

Can I get a good rate without OAC financing?

There are plenty of opportunities to get a terrific rate on a car loan. OAC financing is one of them, but it’s far from the only approach. Check for dealership sales, take the time to improve your credit, and use your resources. Comparison websites like Loans Canada let you compare lenders. By doing research in advance you can make a fully informed decision, often resulting in substantial savings.
Corrina Murdoch avatar on Loans Canada
Corrina Murdoch

Corrina Murdoch has been a dedicated freelance writer and editor for several years. With an academic background in the sciences and a penchant for mathematics, she seeks to provide readers with accurate, reliable information on important topics. Working as a print journalist for several years, Corrina expanded her reach into the digital sphere to help more people gain insight into the realm of finances. When she's not writing, you can find Corrina swimming and spending time with family.

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