Your credit score plays a significant role in your ability to get a car loan for a new car. Today, a car loan in Canada doesn’t require a minimum credit score. Your options may be limited, however, if your score is low. So, before you start looking for a new car, it’s a good idea to know your credit score.
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What is a credit score?
A credit score is based on your credit report. Your credit report contains new credit accounts, types of credit used, amount of debt, payment history, and length of credit history. In order to determine a person’s creditworthiness, the lender studies the credit report, although it is only one of many pieces of information. The credit score ranges as follows:
- 300 to 579 = poor credit score
- 580 to 669 = fair credit score
- 670 to 739 = good credit score
- 740 to 799 = very good credit score
- 800 to 850 = excellent credit score
Can I get a car loan with a credit score under 600?
A credit score of 600 is less likely to qualify for better terms. Even if you have a low credit score you can get approved for auto finance. In order to do so you need to learn what the minimum income is for a car loan and compare lenders to check the average interest rate for getting a loan with bad credit.
While not essential, a cash down payment can help boost your chances of approval because it reduces the overall amount you need to borrow. Furthermore, adding a trusted family member or friend as a co-signer can make it easier to get that stamp of approval because it lowers the level of risk to the lender. Of course, these options aren’t available to everyone, and simply choosing the right lender is more than half the battle.
How a car loan helps you build credit
Fortunately, you can build your credit fairly quickly with a car loan. The payment history of your car and other loans contributes 35% of your credit score, so making your car payments on time each month will help improve your credit rating. Good payment history shows lenders you are reliable and creditworthy.
A better or good credit score will help you qualify for better interest rates on loan products. In as little as 30 days, your credit score can improve when you make regular, on-time car payments. That being said, rebuilding credit scores doesn’t happen quickly. It is important to make all payments when due and over time your score will increase.
What to do if you need a car loan but have a bad credit
If you have a bad credit score, Legacy Auto can help you. We can help you even if you have bad credit, need a new vehicle and are looking for an affordable payment plan. A major part of our approval process is determining your affordability. Simply, fill out an online Car Loan Application, and our credit helpers will help you find a payment plan that meets your needs, or you can just contact us.