Many online lenders offer car loans for fair credit scores between 560 and 660, but you need good to excellent credit to qualify for the lowest interest rates. Here’s what you need to know about fair credit car loans, including eligibility requirements and how to compare your options.
If your credit score is around 660 or higher, you can qualify for a car loan from most lenders, provided you meet other eligibility criteria. If your credit score is lower, you might only be able to get vehicle financing from lenders that cater to bad credit borrowers. Be aware that you’ll end up paying higher interest rates.
What is considered fair credit?
If your credit score is somewhere within the range of 560 and 659, you fall into the “fair credit” category, according to credit reporting bureau Equifax. Credit score tiers vary between bureaus but generally break down like this:
760 and up: Excellent
725 to 759: Very good
660 to 724: Good
560 to 659: Fair
Below 560: Poor
If you fall into the fair credit category, you’ll be less likely than good- or excellent-credit borrowers to qualify for the lowest car loan interest rates, and less lenders will be willing to offer you financing.
Where can I get car loans for fair credit?
The following options are available to you:
Dealerships. You can go directly to a dealership. This dealership is partnered with a range of lenders and can take your application to lenders who finance borrowers with fair credit.
Online brokers. You can apply to an online broker that’s partnered with hundreds of dealerships and will match you with dealerships that are open to your financial situation.
Both options provide car loans for fair credit and poor credit car loans. To compensate though, you’ll encounter higher interest rates and fees for any loans you are approved for. You’ll need to make sure you have enough employment income to take on more debt because this is the key factor they’ll focus on instead of your credit score.
What are the eligibility requirements of car loans for fair credit?
While each lender will have its own set of eligibility criteria you’ll need to meet, to apply for a fair credit car loan, you generally must:
Be a Canadian resident or citizen. Be prepared to provide proof of residency such as utility bills or credit card statements with your address.
Be at least the age of majority in your province or territory (18 or 91 years old)
Have valid government-issued ID such as a driver’s license or passport
Have a valid Social Insurance Number (SIN)
Consent to a credit check
Have steady income. Lenders have varying minimum income requirements, but you might need to show proof of employment for at least 3 months. This could include bank statements, pay stubs, a letter of employment or your most recent tax Notice of Assessment.
Have a valid Canadian bank account for depositing your loan and making repayments.
How to get the best car loan for fair credit
Follow these steps to score a fair credit car loan with the best possible rates and terms:
Improve your credit before applying. Before you apply for a car loan, get your credit into shape. Pay down your credit card debt as much as you can, and make sure you aren’t late or missing any debt repayments. Boosting your credit history will help you secure a lower rate.
Shop around. Do your research and handpick a few lenders that have eligibility requirements you can easily meet. Then apply for car loan pre-approval to see what rates and terms you qualify for. If lenders require hard credit checks, submit your applications around the same time. Multiple credit checks conducted close together will count as one hit to your credit file, minimizing the negative impact on your credit score.
Apply with a cosigner. Bringing on someone with a higher credit score can increase your chances of approval for a loan. If you plan on sharing the car, you’ll share the responsibility for paying it off.
How to evaluate car loans for fair credit
You’ve submitted your loan application and received a loan offer to help you buy your car, but how do you decide if it’s good or not? Here’s what to focus on to help you find the best car loan for fair credit:
The interest rate
Are you happy with the interest rate? Shopping around for the lowest interest rate will save you money over the lifetime of your loan. Focus on the annual percentage rate (APR), which is the annual interest rate plus other fees you’ll pay for the loan.
Are you comfortable with the repayment conditions such as the time period, payment frequency and the payment amount? Check if the car loan has prepayment penalties. This is especially important if there’s a chance you’ll refinance your car loan to get a lower interest rate once your credit score improves.
Principal versus interest
Examine the payment schedule to find out how much of your payment is going towards paying interest versus reducing the principal.
Fees and charges
Fees can drive up the cost of your loan. Besides prepayment penalties, charges you should watch out for include origination fees (administration fee to process your loan), NSF fees, late payment fees and loan insurance.
Ways to increase your credit score
Aiming to improve your credit score several months before applying for a car loan is your best bet to help you secure a lower interest rate. Here’s how to do this:
Pay your bills on time
Get into the habit of paying your bills on time, because this is precisely what lenders want to see on your credit report. Besides boosting your credit score and increasing your odds of getting approved for a car loan, you’ll also avoid paying late fees.
Keep credit card balance low
To indicate to lenders that you’re a responsible borrower, only carry a balance with a credit utilization ratio of 30% or less. For example, if your credit limit is $1,000, keep your balance below $300, which is 30% of your limit.
Avoid too many hard credit inquiries
Every time you apply for a credit card, line of credit or loan, it’s listed on your credit report as what’s known as a hard inquiry and pulls down your score. Try to avoid applying for more credit before shopping for a car loan, so lenders won’t think you’re shouldering more and more debt.
Build a credit history
If you don’t have a credit history, you’ll need to start building your credit. You can start small by opening a mobile phone plan or an internet account in your name. Gas and other utility accounts also factor in, as do store credit cards.
Correct late payments
Let’s say you have one delinquency with a credit provider. This black mark might be removed from your credit report if your account is in good standing and you have a valid excuse for missing that payment.
Bottom line
If you’re shopping for a car loan with less-than-perfect credit, there are plenty of lenders that offer car loans for fair credit. Spend your time researching lenders that provide loans with a minimum credit score requirement that you can meet. Shop around to figure out which lenders will offer you the best interest rates and conditions.
Ultimately, a fair credit car loan can be just the ticket to help you get the keys to your new car. It’ll help you rebuild your credit in the process, too.
Frequently asked questions about car loans for fair credit
Yes, you can. Used cars typically come with lower price tags, which means you'll need to borrow less from a lender. The lower the loan amount, the easier it is to qualify for financing.
Yes. If you have a 600 credit score, it's possible to get a car loan. In fact, most online lenders and dealerships work with buyers who need a fair credit car loan. Compare interest rates, fees and eligibility requirements of different lenders to find the best 600 credit score car loan option for your needs.
The interest rate on a fair credit car loan depends on personal factors like your credit score, income and debts. More favourable rates and terms will be offered to borrowers with good to excellent credit scores, but but there are lenders willing to provide auto loans to those with fair credit.
If your credit score has improved since you first got your car loan, you may be able to refinance your car loan with your current lender (if refinancing is allowed) or apply to another lender. Other factors that will help you refinance a car loan with fair credit include higher income and lower debt.
Carmen Chai is a freelance writer at Finder, specializing in financial products. She is an award-winning Canadian journalist who has lived and reported from major cities such as Vancouver, Toronto, London and Paris. She has reported on personal finance, mortgages, and banking products for nearly a decade.
Tired of overpaying for your car loan? Find out if refinancing is the right step for you.
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