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What Credit Score is Needed for a Car Loan in Oakville?

What Credit Score is Needed for a Car Loan in Oakville?

When buying a new or used car in Canada, you will need financing to make the purchase happen. The vast majority of Canadians do not have thousands of dollars inside their bank account to use for this type of purchase. Credit scores are a hot topic so we asked our Oakville auto loans team to give you the lowdown on what credit score is needed for a car loan.

 

What type of credit score is needed for a car loan?

 

Auto loans broadly speaking will fall into one of two categories, they will either be prime or subprime.

 

Prime applies to customers with credit scores that exceed 680 and have a stable income. These loans come with some very low interest rates so you can keep your monthly payments low without having to compromise on the car you want to buy.

 

For a good portion of the Canadian population, they would fall under the subprime rating.

 

This does not mean the borrowers are bad people, it just means they do not meet the underwriting requirements for “prime Oakville auto loans”.

 

Individuals who are classified as subprime borrowers will have to pay a substantial interest rate premium to get the loan approved.

 

The good news is some lenders specialize in financing sub-prime auto deals but you will need to find a dealership in your community that works with these lenders.

 

Selecting the right car dealership

 

If you are a subprime car buyer, you have to look for dealerships that can help you secure the financing. Since the interest rates being levied are considerably higher than what prime auto loan borrowers pay (prime rates are under 5% while subprime can easily go beyond 20%).

 

Higher interest rates mean a larger portion of each monthly car payment goes to servicing the debt instead of paying down the principal.

 

Most car loans will not go beyond 72 months, so your loan must be paid in full by the end of the 72 months.

 

With a limited budget, you may not be able to buy a brand new car this time around.

 

Consider getting a reliable used car that will get you where you need to go until your credit score improves. Ford and Kia produce some amazing cars, so give some thought to purchasing a used model from these manufacturers.

 

How to get a prime loan

 

The good news is you are not required to stay in the subprime auto loan for the entire duration.

 

One effective strategy that you might consider is taking the sub-prime loan for 12-18 months until your credit score exceeds 680. When your credit score reaches that level, you would be able to refinance your Oakville auto loan at prime rates.

 

This approach has worked well in the past and provides you with the ability to get a car now which you may need to travel for work or school.

 

You will need to stay on top of your credit score so you will know precisely when to refinance your auto loan. There are applications you can install on your phone, that let you track your credit score in real-time. One of the more popular apps is Credit Karma and you can use it for free.

 

Now that you know what credit score is needed to buy a car in Canada, you can start shopping online. Just remember to stick with your plan and you will be able to buy a new car at competitive interest rates soon enough.

 

Contact Unique Chrysler for help, advice and competitive Oakville car finance and leasing.

 

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Categories: Auto Loan

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