{"menuItems":[{"label":"Compare car loans for fair credit","anchorName":"#compare-car-loans-for-fair-credit"},{"label":"What is considered fair credit?","anchorName":"#what-is-considered-fair-credit"},{"label":"Where can I get car loans for fair credit?","anchorName":"#where-can-i-get-car-loans-for-fair-credit"},{"label":"What are the eligibility requirements of car loans for fair credit?","anchorName":"#what-are-the-eligibility-requirements-of-car-loans-for-fair-credit"},{"label":"How to get the best car loan for fair credit","anchorName":"#how-to-get-the-best-car-loan-for-fair-credit"},{"label":"How to evaluate car loans for fair credit","anchorName":"#how-to-evaluate-car-loans-for-fair-credit"},{"label":"Ways to increase your credit score","anchorName":"#improvecredit"},{"label":"Bottom line","anchorName":"#bottom-line"},{"label":"Frequently asked questions about car loans for fair credit","anchorName":"#frequently-asked-questions-about-car-loans-for-fair-credit"}]}
Shopping for car loans for fair credit? While you might have trouble financing a car through conventional lenders, you’ll still have access to a wide range of online lenders. But you may need to pay higher interest rates.
Here’s what you need to know about car loans for borrowers with fair credit, how to apply and what to look out for in the fine print.
Compare car loans for fair credit
1 - 5 of 5
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. Here’s how Equifax breaks down credit score rankings:
760 and up: Excellent
725 to 759: Very good
660 to 724: Good
659 to 560: Fair
Below 560: Poor
If you fall into the fair credit category, you’ll be less likely to qualify for better interest rates for your car loan, and the range of lenders willing to offer you a loan will be smaller too. And once your credit score dips below 560, you’ll need to narrow your focus to lenders that offer bad credit car loans.
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, expect these baseline requirements if you’re applying for a fair credit car loan:
You must be a Canadian resident or citizen who is at least 18 years old. Government-issued ID is required for identity verification.
You must have a valid Social Insurance Number, and in most cases, consent to a credit check.
You must be employed for at least 3 months. Keep in mind that some lenders may have a minimum income requirement you must meet. You may be asked for income verification with bank statements, pay stubs or a letter of employment.
You must have a valid Canadian bank account to arrange a deposit of your funds and automatic withdrawals for loan repayments.
You must have a Canadian address (proof via utility bills or other documents).
How to get the best car loan for fair credit
If you want to catch a break and score a decent fair credit car loan, follow these steps:
If you can, improve your credit first. Before you apply for a car loan, try your best to get your credit into better shape. Pay down your credit card debt as much as you can and make sure you aren’t late or missing any payments on any of your debts. A boost in your credit history will help you secure a better rate. Learn more about how to improve your credit.
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 with these options to see what rates and terms they qualify you for. If they run a hard credit check, make sure to keep your applications within a few weeks to avoid hurting your credit score.
Apply with a cosigner. Bringing on someone with a higher credit score can increase your chances of approval for a loan. And 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 to get the loan. Learn more about car loan rates in Canada.
Repayments
Are you comfortable with the repayment conditions, such as the amount of time you have, the payment frequency and the payment amount? Also check if the car loan has prepayment penalties, especially 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 and know how much of your payment is going towards paying the 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 (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. You can do this by doing the following:
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. You’ll avoid late fees and your credit report will get that boost you need ahead of applying to lenders.
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, they may remove that black mark from your credit report if your account was in good standing and you have a legit excuse as to why you missed 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. From there, 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 the lender. Lower loan amounts are easier to qualify for than higher loan amounts.
Yes, you can. Don’t let a credit score of 600 deter you from applying for a car loan. In fact, most online lenders and dealerships will provide you with a fair credit car loan. Your job is to compare lenders, their eligibility requirements, interest rates, terms and extra fees.
The interest rate will depend on personal factors such as your credit score, income and debts. While you won’t get the most competitive interest rates and terms, you’ll still find lenders willing to offer you a fair credit car loan to suit your needs.
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 they allow refinancing) or apply to another lender. Other factors that will help you refinance a car loan with fair credit are if your income is higher and your debts have decreased.
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.
Annual customer service awards helps recognise car loan alternative and traditional lenders and loan search platforms on quality customer service based on the real-world experience of customers.
Find out where you can get a private sale car loan and what you should know before you apply.
Feedback
How likely would you be to recommend finder to a friend or colleague?
0
1
2
3
4
5
6
7
8
9
10
Very UnlikelyExtremely Likely
Required
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
Advertiser Disclosure
finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which finder.com receives compensation. We may receive compensation from our partners for placement of their products or services. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn't influence our assessment of those products. Please don't interpret the order in which products appear on our Site as any endorsement or recommendation from us. finder.com compares a wide range of products, providers and services but we don't provide information on all available products, providers or services. Please appreciate that there may be other options available to you than the products, providers or services covered by our service.
