For most Canadians, purchasing a brand-new car outright for full price is an expensive endeavour. While its principal price may seem cheaper without the additional monthly rates, it’s still a considerable financial risk. After all, you’ll never know when you’ll need your cash on hand for something more urgent than a new car.
Securing a car loan requires you to show your credibility as a borrower to a loan company. They calculate this by computing a borrower’s credit score. Every person’s credit score will vary, depending on their financial history and spending habits. For this reason, it’s vital to know which variables affect your chances of getting a better score to apply for favourable car loan rates.
Understanding Credit Scores
Credit scores are values that range between 300-850 that rank a person’s creditworthiness. Generally, the higher your credit score, the more reliable you are as a borrower. Although lending companies will vary slightly on their ranking factors, the value range for loaning opportunities is typically the same for all.
For example, people with credit scores of 670 and above can expect low rates and a high chance of getting their loan approved. A level lower would be a rank above 580, where a lender may only apply for specific loan rates. Lastly, a grade between 300-570 is considered a poor credit score rate to have. This limits your opportunities to secure loans.
Determining Your Credit Score
Computing your credit score will slightly vary from one lender to another. This is because there may be different loan terms and costs from various providers. It factors in the following variables for a car loan:
- Length of term
- Payment method
- Average loan rate
- Total out-of-pocket cost
Since different loan plans are offered to varying individuals, the type of loan you’ll apply for may also slightly adjust your total loan cost. Thankfully, lending institutions offer loan calculators to determine what your total score will be. A credit score of 800 and above is suitable for your record, and you’re generally in a favourable range if you get 740 and above.
Improving Your Credit Score
A bad credit score doesn’t just prevent you from applying for favourable car loans; it also affects your ability to apply for mortgages, personal loans, and home equity loans, to name a few. Even worse, potential rejection after applying for one can lead to further rejection for future applications. For this reason, you need to bump up your credit score by building good spending habits.
Listed below are some ways you can improve your credit score:
- Pay Bills on Time: The simplest way to improve your credit score is to stay consistent with your dues. Avoid missing them, and you’ll have a better credit history to present to lenders.
- Be Responsible in Handling Your Credit: Staying on the good side of credit unions and financial institutions can vouch for your creditworthiness as a borrower. If you can pay your credit card debt on time, lending entities will look at you favourably as well.
- Monitor Your Credit Reports: You can’t just let your spending habits prove your creditworthiness. You should also confirm with your credit reports if your progress reflects on paper. Doing so will help you adjust your spending and borrowing habits as necessary.
Buying your first car doesn’t have to be a race to pay off your dues. While a car may be a necessary purchase, remember that you have other expenses to consider when maintaining your lifestyle. Because of this, you should only secure the best loan rates from reliable loan providers.
At Get Approved Canada, we help borrowers receive the funding that’s fair for their budget range. With our diverse loan options, you’ll find the right one to fit your financing needs. If you need reliable car financing in Canada, contact us today!