What Credit Score Is Needed for Car Financing in Ontario?

If you're looking to finance a car in Ontario, your credit score plays a big role in determining the interest rate and loan terms you'll be offered. Here’s a quick breakdown:

• 660 or Higher: Considered "good" credit. You'll qualify for most financing options with competitive interest rates (0%–10%).

• 560–659: "Fair" credit. Financing is possible, but expect higher interest rates (9%–29.99%) and stricter terms.

• Below 560: "Poor" credit. Approval is challenging, and interest rates can soar to 30% or more. Subprime lenders may be your best option.

Other Factors Lenders Consider:

• Income stability and employment history

• Debt-to-income ratio (preferably below 40%)

• Size of your down payment

If your credit score isn’t ideal, subprime lenders, dealership financing, or adding a co-signer can help. Improving your credit score by paying down debt and fixing errors on your credit report can also lead to better terms in the future.

KEY FACTORS You Need to Know about Credit Scores and Car Loans (Former Dealer Explains)

Credit Score Requirements for Car Financing in Ontario

Understanding credit score expectations in Ontario can help you set realistic goals when seeking car financing. While there’s no universal minimum credit score for car loan approval [4], lenders have varying standards depending on their risk tolerance and lending policies. Here’s a breakdown of credit score ranges and how they influence your financing options.

Credit Score Ranges: Poor, Fair, and Good

Ontario lenders use credit score categories to determine your eligibility and loan terms:

Poor Credit (300–559):
If your credit score falls between 300 and 559, traditional financing options are usually out of reach [5]. Most banks and credit unions are likely to decline your application. However, subprime lenders may approve loans in this range, though interest rates can soar to 30% or higher [6].

Fair Credit (560–659):
A score in this range means financing is possible but comes with challenges [5]. Traditional lenders might still be hesitant, and if approved, you’ll likely face interest rates well above the national average.

Good Credit (660–724):
Scores between 660 and 724 open up far more opportunities [5]. A score of 660 or higher is widely considered "good" and increases your chances of approval with better terms [3]. Most banks and credit unions will offer competitive interest rates to borrowers in this range.

Auto Loan Requirements by Lender Type

Different types of lenders apply varying credit score standards:

Traditional Lenders (Banks and Credit Unions):
With stricter qualification criteria, these lenders typically require a credit score of 660 or higher [3]. They offer lower interest rates but favor borrowers with strong financial profiles.

Dealership and Subprime Lenders:
These lenders are more flexible, often approving borrowers with scores as low as 600 [3]. However, the tradeoff is higher interest rates to account for the increased risk.

It’s worth noting that approval rates have tightened recently. TransUnion reports that Canada’s auto loan approval rate fell to 73% in 2022, compared to 79% before the pandemic [10].

Other Approval Factors Besides Credit Scores

While your credit score plays a major role, lenders also consider other factors to assess your financial stability and ability to repay:

• Income Stability:
  A steady income shows lenders you can handle monthly payments. Borrowers with at least two years of consistent employment in the same job or industry are viewed more favorably [7].

• Debt-to-Income Ratio:
  This ratio measures your ability to manage additional debt. Lenders generally prefer a ratio of 40% or lower [9].

• Employment History:
  A solid work history signals reliability and reduces the perceived risk of default [7].

• Down Payment Size:
  A larger down payment decreases the loan amount needed and reflects financial responsibility [8].

Even if you meet the minimum credit score requirement, approval isn’t guaranteed. Lenders weigh all these factors together when deciding on your application [6]. Your credit score, combined with these additional elements, determines the financing options available to you.

Car Financing Options for Low Credit Scores

If your credit score isn’t ideal, don’t worry - there are financing options that can help you get a car while also improving your credit over time. Let’s break down some of the most practical paths available.

Subprime Lenders

Subprime car loans are designed for people with credit scores below 650 in Canada [12]. Unlike traditional banks, these lenders look beyond just your credit score. They consider factors like your income, job stability, and ability to make monthly payments [14].

The big upside? Their approval process is more flexible [12]. The downside? Higher interest rates. While the average annual interest rate for a used car loan in Canada is about 8% [13], subprime borrowers often face rates significantly higher than that.

Still, there’s a silver lining. Paying off a subprime loan on time can actually help rebuild your credit, as these payments are reported to credit agencies [11][14]. Some dealerships even offer specialized programs to make financing more accessible, giving you additional options to consider.

Dealership Financing Programs

Certain dealerships specialize in helping people with poor or no credit history [15]. These dealerships often work with a variety of lenders to offer financing options tailored to your financial situation. Some even provide in-house financing, acting as the lender themselves [15][16].

Take Hello Motors, for example. They partner with financial institutions to offer customized financing solutions for all credit types. Whether you’re dealing with bad credit or no credit at all, they focus on your current income and ability to make payments rather than just your credit score.

In Ontario, many dealerships are willing to work with low-credit borrowers [17]. This makes dealership financing a practical option if you’re struggling to secure a loan through traditional means.

Co-Signers and Down Payments

If you want to improve your chances of approval - or even secure better loan terms - consider these two strategies: adding a co-signer or making a larger down payment.

A co-signer with good credit can make a huge difference [13]. By agreeing to back your loan, they reduce the lender’s risk, which can lead to better interest rates and terms. Meanwhile, a down payment of around 20% can lower the loan amount and reduce your monthly payments [13]. It also shows lenders that you’re financially responsible, which can work in your favor.

Using both strategies together can be especially effective. Even with a low credit score, a strong co-signer and a substantial down payment can help you access financing options typically reserved for borrowers with better credit.

Before applying for financing, make sure you’re prepared. Have documents like pay stubs, bank statements, and proof of residence ready to go [11]. Being organized can speed up the process and show lenders you’re serious about securing a loan.

How to Improve Your Credit Score for Better Financing

If you're thinking about financing a car, improving your credit score can make a big difference. A better score often means lower interest rates and more favorable loan terms in the future.

Pay Down Current Debt

Reducing your current debt is a key step toward improving your credit score. One major factor in your score is your credit utilization ratio - essentially, how much of your available credit you're using. To boost your score, aim to keep this ratio below 30% of your total credit limit[18].

For instance, if your credit card limit is $5,000, try to keep your balance under $1,500. Reducing a $3,000 balance to around $1,200 could significantly improve your score in just a few months.

Start by focusing on high-interest debts. This approach not only lowers your balances but also saves you money on interest payments over time[19].

"Your payment history is the most important factor for your credit score."
– Financial Consumer Agency of Canada[18]

Fix Credit Report Errors

Another critical step is ensuring your credit report is accurate. Mistakes on credit reports are more common than you might think, and they can hurt your chances of getting approved for financing. In fact, about 1 in 5 credit reports may contain serious errors that impact credit scores[20].

These errors could include negative marks that don’t belong to you, late payments that were actually made on time, or incorrect account balances[21]. Even a single mistake can lead to higher interest rates, loan denials, or thousands of dollars in extra costs over the life of a loan[21].

Before applying for car financing, check your credit reports from both Equifax and TransUnion. In Canada, you can request free copies from these agencies. Look for accounts you don’t recognize, payments marked late in error, or debts that aren’t yours. If you spot any issues, dispute them right away by providing evidence to the credit bureau[21].

As the Cardoza Law Corporation points out:

"Unfortunately, a lender doesn't care if your credit score is low because of an error on your report. It is entirely up to you to check your report, identify errors, and take steps to correct the errors before you apply for the new car loan."[20]

Build Consistent Payment History

A solid payment history is the cornerstone of a strong credit score. Since payment history makes up 35% of your FICO score[23], it’s the most critical factor lenders evaluate. Regular, on-time payments show that you’re dependable and capable of managing debt[22].

Missing payments, even by 30 days, can hurt your score significantly - dropping it by 20 to 80 points or more depending on the situation[23]. Severe delinquencies can have an even greater impact.

To avoid late payments, consider setting up automatic payments or reminders. Even paying the minimum amount on time is better than missing a payment altogether[18]. If you think you might have trouble making a payment, contact your lender as soon as possible to discuss options[18].

Electronic alerts from your bank or credit card provider can also help you stay on track[18]. Over time, a consistent record of on-time payments will strengthen your credit[23]. While older issues on your report will matter less as they age, creating a fresh history of positive payments is essential.

As myFICO explains:

"Payment history shows how you've paid your accounts over the length of your credit...a lender's number one priority is your past record of paying back (or not) your loans."[22]

Taking these steps can make a big difference when it’s time to finance your next car. The effort you put into improving your credit now could save you thousands of dollars in interest and open up better financing options down the road.

Hello Motors Car Financing in Ontario

Finding the right dealership can make all the difference when you're navigating credit challenges. Hello Motors stands out by working with customers across the entire credit spectrum, from those rebuilding after financial setbacks to first-time buyers with no credit history. Here’s how they tailor financing solutions to fit every credit profile.

Financing Options for Every Credit Situation

At Hello Motors, your financial story goes beyond just a credit score. Unlike traditional lenders who often rely solely on numbers, Hello Motors takes the time to evaluate your full financial picture and current circumstances.

By partnering with multiple lenders, they work to find the most suitable financing option for your needs. Whether you're dealing with a recent bankruptcy, a consumer proposal, or a credit score under 600, Hello Motors connects you with lenders experienced in handling similar situations.

Their financing solutions are designed to accommodate various challenges, including customers receiving ODSP benefits, those who’ve gone through bankruptcy, or individuals currently in consumer proposals. They understand that a low credit score doesn’t always reflect your current ability to make consistent car payments.

Transparent and Supportive Service

For many customers with credit challenges, the fear of hidden fees or confusing terms can be a major concern. Hello Motors addresses this by providing a clear and straightforward process from application to approval.

Their priority is matching you with the lender that offers the best terms for your situation, ensuring competitive rates within your credit tier. Instead of rushing you into the first available option, they take the time to find financing that aligns with your needs and budget.

Hello Motors also offers multilingual support in English, French, Spanish, and Arabic, making the process accessible to a wide range of customers. Their dedicated team is there to answer questions and guide you through every step, ensuring a smooth and stress-free experience.

Convenient Home Delivery Service

To make car buying as easy as possible, Hello Motors offers home delivery anywhere in Ontario. This service is especially helpful for customers managing credit concerns or those with limited transportation options.

With home delivery, you can skip multiple dealership visits. The team handles paperwork and vehicle inspections at your home, simplifying the process and reducing stress. Once your financing is approved and your vehicle is ready, Hello Motors coordinates a delivery time that fits your schedule, bringing your new car straight to your doorstep.

This service reflects Hello Motors’ commitment to creating a hassle-free car-buying experience, offering convenience and peace of mind every step of the way.

Key Points About Credit Scores and Car Financing

When it comes to credit scores and car financing in Ontario, a few key insights can help you navigate the process with more confidence. Generally, lenders look for a credit score of at least 660 to approve a car loan with reasonable interest rates [1][2]. The difference between having an excellent credit score and a subprime one can be significant, often translating into thousands of dollars saved over the life of your loan [1]. These benchmarks are just the starting point for understanding the broader factors at play in car financing.

While your credit score is important, lenders also consider other elements, such as your employment history and debt-to-income ratio [6]. So, even if you meet the minimum credit score requirement, approval isn’t guaranteed. However, a solid credit score does improve your chances substantially.

If your credit score isn’t where you’d like it to be, there are ways to improve your situation. Standard credit-building practices can make a difference over time. Additionally, offering a larger down payment can help offset concerns about your credit by reducing the amount you need to borrow and showing lenders that you’re financially committed [24].

Ontario offers a range of financing options to suit different credit situations. For borrowers with lower scores, subprime lenders specialize in working with individuals who fall below the 660 threshold. Dealership financing programs may also offer more flexible approval criteria compared to traditional banks [24]. For example, Hello Motors provides three financing plans - Basic, Premium, and Custom. Their Custom Financing option stands out by offering no credit restrictions and creating personalized plans tailored to each customer’s unique circumstances.

Teaming up with a flexible dealership like Hello Motors can make a big difference. They don’t just look at your credit score - they evaluate your entire financial profile. With competitive rates for your credit tier, clear service terms, and convenient perks like home delivery, they can turn what’s often a stressful experience into something much easier to manage. Whether you’re rebuilding your credit after setbacks or just starting out, finding lenders who consider your full financial picture instead of focusing solely on your credit score is key.