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In Canada, the great thing about getting a car loan is that there’s no minimum credit score requirement. That said, your credit score will limit your vehicle options and heavily influence your interest rate. The lower your credit score, the greater the overall cost.
A Good Credit Score To Buy A Car With No Down Payment
Credit scores range from 300 to 900, with 300 being the lowest and 900 being the highest. When it comes to purchasing a car, you could realistically have any credit score and potentially get approved. That said, when purchasing a car, you really need to pay attention to your credit score, especially when it comes to purchasing a used car.
Since used cars are a riskier investment than brand-new vehicles, the interest rates on them are traditionally higher. It’s not uncommon to have an interest rate on a used car of around 20%. With used cars, it’s more common to have average interest rates somewhere between 0% and 10%. That said, you also have to consider the total cost of the vehicle and the resale value of the vehicle. Those with a lower credit score will likely spend more in interest and potentially spend more than the vehicle is worth.
In order to get the most out of purchasing a vehicle, especially with no down payment, you’d ideally want a credit score in the really good or excellent range. Ideally, having a credit score of 700 or higher is the best way to get the best rates on a vehicle. However, you also need to consider your debt-to-income ratio. You have to be able to afford the vehicle loan and have a decent credit score in order to get approved. If not, you may be required to put down a larger down payment.
Credit Score Needed For A $30,000 Car Loan
No matter where you are in Canada, there are plenty of different options available to those purchasing a vehicle for around $30,000. However, it’s important to pay attention to the total amount you’re approved for instead of just the monthly payment amount. Depending on your interest rate, you could easily end up spending thousands of dollars more than the list price.
When purchasing a vehicle for $30,000, the interest rate will vary depending on whether it’s a new or used vehicle and your credit score. New cares traditionally have much lower interest rates, so you have a bit more wiggle room with your credit score. For used cars, the higher the interest rate, the better. However, there is a recommended credit score range.
To facilitate a car purchase of $30,000, it’s recommended that you have a minimum credit score of at least 660. This is considered to be a good credit score. However, having a credit score of 700 or higher puts you in the prime credit score range, opening you up to competitive financing options.
Credit Score Needed For A Car By Province
In Canada, the credit score system is universal. This means that no matter what province you live in, the general requirements for purchasing a vehicle are the same. This is mainly because the financial institutions that approve these loans work across the country, just not in one specific province. That said, though, the price of different vehicles varies based on the province you live in as well as the amount of tax that you pay on these vehicles.
Credit Score Needed For A Car With No Cosigner
When it comes to purchasing a vehicle with a cosigner, you have much more wiggle room regarding your credit score. In order to purchase without a cosigner, it’s recommended to have a credit score of 650 or under, so if your score is under that, then you’ll likely need one. In a situation like this, the cosigner's credit score is the most important.
In order to help you purchase a vehicle, a cosigner should have a credit score of at least 700 or higher. The person signing for the vehicle with you also needs to understand the risks. Essentially, they’re saying that they trust you to make the payments on the vehicle and that if you don’t, they’re willing to take on the liability. So they’re willing to take on the liability that the finance companies won’t.
Even if you have a cosigner, though, as long as you make your payments on time, then you’ll build credit for both of you. In time, you can even transfer the loan solely into your name and remove your cosigner. This can make it easier to get even more financing in the future while providing a different type of financing to your credit mix.
The Minimum Credit Score To Purchase A Car
Technically, there’s no minimum credit score needed at all to purchase a car. This is because you don’t need a loan to purchase a vehicle. If you’re choosing to purchase a vehicle in cash, then there’s no credit score limit at all. It’s also the cheapest way to purchase a vehicle since you won’t be making any interest payments. However, it’s more costly up front.
If you’re using a cosigner, there’s also no limit to what your credit score can be since it’s the cosigner's credit score that matters the most. While the payments will still affect your credit score, this gives you the ability to purchase a vehicle at a better interest rate.
The Minimum Credit Score For A Car Loan
If you’re getting a new car loan in Canada on your own, then your credit score makes a much larger difference. If you’re getting a loan with car dealerships, then they prefer a credit score of 550 to 600 in order to give you a loan. However, these loans could be a little more expensive. Since you aren’t in the prime range, you’re looking at a higher interest rate.
If your credit score is below the 550 range, it’s still possible to get a car loan without a cosigner through alternative and online lenders. These lenders have more flexible lending options than traditional lenders like banks and credit unions, allowing those with bad credit scores and poor credit scores to make purchases. However, they do also have higher interest rates on their car loan rates and require bigger down payments. For this reason, many people refer to these loans as bad credit car loans.
The Credit Score Needed For A Car Lease
Instead of purchasing a vehicle, some people choose to lease one instead. However, it’s important to keep in mind that leases are done through car dealerships so the credit score needed to get approved is higher than that of a car loan. Most lenders through dealerships prefer your credit score falls between 680 and 740. Some will allow you to have a credit score as low as 620 but it can be rare and depend on the car.
Leasing A Car With A 600 Credit Score
Just because it’s not common to get a car lease with a 600 credit score doesn’t mean that it’s impossible. This is because dealerships consider more than just your credit score as decision factors, there are other factors that are also important. While a higher credit score plays a role in making a car loan approval more likely, there’s actually no universal minimum credit score limit for leasing vehicles. However, it does still affect your credit score.
Leasing Over Purchasing With A Low Credit Score
If you have a lower credit score, it’s likely that your lease payment will be cheaper than purchasing a vehicle. This is because when you purchase a vehicle you’re paying the full value of the vehicle, and with a lease, you’re only paying a portion of the vehicle's value. No matter your credit score, your monthly payments on a lease are going to be lower.
With a lease, though, you have to keep in mind that you will have to return the vehicle. With a purchase, you can keep the vehicle for as long as you like and sell it once you’re done with it. It also doesn’t matter how much damage is done to the vehicle and how many kilometres you drive. There are limitations to these things with a lease and penalties when you return the vehicle if you don’t meet these requirements.
Where To Check Your Credit Score
It’s important that you know your credit score before you go car shopping and start a car loan application for an auto loan or lease. Before you do this though, it’s important to also have an understanding of how credit works. Well, in Canada there are two credit bureaus and each of these main credit bureaus has its own credit scoring models to determine your credit score. This means that you essentially have two different credit scores. One with Equifax and one with TransUnion.
While it can cost you to do a hard credit check with either of these credit bureaus, there are websites and apps that allow you to check your credit score and find out your likelihood of approval. These sites are:
- Credit Karma (TransUnion)
- Borrowell (Equifax)
- Clear Score (TransUnion)
You can also get a free soft check done with each of the credit bureaus. These are helpful in giving you a good idea of where your credit score stands. While they don’t give you a full overview of your credit report, credit history, and payment history like a hard credit check does, they do tell you what you need to work on regarding the likelihood of your approval on certain credit products.
Another great thing about these sites is that they show which range your credit score sits in. If you have fair credit, bad credit, poor credit or even an excellent credit score. They also show you a breakdown of your credit card accounts, credit card balances, credit limits, and all of your other credit product balances. It will also show you your average of paying bills and if you have any missed payments. Although, this is only in a certain time period, not your whole credit history.
Final Thoughts
In Canada, credit scores are important for a lot of different reasons, the main one being borrowing money. This can be for things like car loans, personal loans and even mortgages. Out of all of these, though, the simplest one to get a loan for is a car. This is because there’s a tangible object you’re purchasing that can be repossessed by the lender. These types of loans are known as secured loans.
Being that car loans are considered to be secured loans, you don’t need as high of a credit score in order to get one. That said, getting approved doesn’t guarantee that you’re going to get a good rate. With a lower credit score, you’re more likely to get a higher interest rate, which could end up costing you thousands more in interest. Ideally, to get the best rates on your next car loan, you need a credit score of 700.
