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How does my credit score affect my car loan?

If you’re in the market to purchase a vehicle and you need the help of a car loan to finance the purchase, you might be wondering how to get the best terms on the money you’re borrowing.

Your credit score is one of the main determining factors that lenders will use to see how trustworthy you are with the borrowed money and its repayment.

All of your former creditors will report your payment history (or lack thereof) to one of two Canadian credit bureaus, who will then quantify you with your very own credit score for further reporting and lending services. This three-digit number will give other lenders an idea of your level of financial responsibility.

In this post, we’ll explain how your credit score impacts your ability to get a car loan on good terms.

Ability to qualify for the loan

Right off the bat, auto lenders will use your credit score to qualify or disqualify you from their services, which allow you to purchase a car with their borrowed money, paid back with interest. Based on whatever credit category you fall into, you’ll be ranked with a level of creditworthiness.

If you have a score below 620, known as a “bad” credit score, qualifying for an affordable loan with fair interest terms will be difficult or impossible depending on the lender and how much risk they’re willing to take on with you.

A “good” to “very good” score will fall between 680 and 740, while an “excellent” score will be higher than 740. Being within these ranges will put you into a good to excellent position for negotiating a fair deal with your auto lender.

Interest rate

If you’ve managed to qualify for a car loan despite a poor credit score, you may wind up with a hefty interest rate, seeing as you don’t appear too financially responsible to creditors.

The interest rate will reflect your higher borrowing risk, as proven through your credit history.

If you have a better credit score, your interest rate will minimize the amount you pay back to the lender, granting you a fairer and more affordable loan.

Lending terms

The terms of the loan will determine how long you have to pay back borrowed money, also understood as the duration of your repayment. The terms will also dictate your interest rate.

Lenders are going to want to see their money repaid as soon as possible, meaning that if you choose to stretch out your loan for the longest duration possible, it’s likely you’ll see yourself paying more money back (in interest) in the long run. This holds true even if the interest rate stays the same as it would with a shorter loan term.

Shorter repayment terms mean less interest paid out long-term.


Your credit score is just one of the variables creditors will use to determine the terms of your car loan. Other variables include the type of car you want to borrow, how much of a down payment you have, and what type of loan you choose to use to purchase the vehicle.

Making sure you’re on top of all of these separate categories can help you get a fair loan in most cases. If you’re out of luck in the credit score or down payment departments, there are still specialty lenders out there that design loans specifically for high risk borrowers.  

Further, a poor credit score will also make your car insurance premium skyrocket.

In general, unfavourable credit scores make it: harder for you to qualify for a loan; more expensive for you to repay that loan; and, more expensive for you to insure your vehicle.