When you’re in the market for an auto loan, your credit score will impact the types of loans and terms you’ll be presented. Knowing your score beforehand and how it may affect your application is important. With your score in mind, here’s how it may impact your car loan rates.
How strong is my credit score?
Your credit score will be expressed as a three-digit number between 300 and 900. While the exact method credit bureaus calculate scores is unique to them, typically, the scoring ranges like this:
- 300-649: Low to fair
- 650-725: Good
- 725-760: Very Good
- 760-900: Excellent
Most dealerships have a minimum credit score requirement to secure a loan. Generally, that’s around 550-600, but this varies depending on the dealership. It’s important to note that meeting the credit score requirement does not guarantee your loan gets approved. Other factors like employment, bankruptcy, assets, and liabilities may also affect the loan approval.
What goes into a ‘good deal?’
Most auto loan negotiations center around interest rates, varying significantly based on your credit score. Interest is the money you pay your lender for the privilege of borrowing money from them. This fee is presented as a percentage of your total loan. Per Statistics Canada, the average interest rate for a car loan in Canada is around 7.69 per cent (as of April 2023). That’s a good baseline to use to evaluate your loan agreement.
With a higher credit score, lenders may be more willing to offer a lower interest rate on your loan. Borrowers with lower credit scores may present more risk, and lenders will likely charge more interest as a result. The interest rate can reach 30 per cent or beyond in some cases. Having a co-signer or making a down payment may also improve your chances of getting approved for a loan with low interest.
How can I improve my credit score?
If you feel your credit score might keep you from getting the deal you want, working on your score might help. While there are several ways to help increase your credit score, basics like paying bills on time and not using all the credit you have can be essential to help improve your score.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.