What credit score you need for a car loan in Canada

"What score do I need for a car loan" is the wrong question, and it is the wrong question in a useful way. There is no line where you become approvable. There is a ladder, and every rung has a price.

The market anchor to hold in your head is the Bank of Canada average car loan rate, around 6.57%. That is the average across everybody. Almost nobody is offered the average, because the spread around it is enormous.

The four bands

Canadian lenders group borrowers into four broad tiers. The score boundaries move a little between lenders, but the shape is consistent.

• Excellent, 720 and up. Roughly 3.99% to 6.99%. You get the manufacturer promotional rates when they exist, and you get to negotiate on price rather than on payment.
• Good, 670 to 719. Roughly 5.99% to 9.99%. Approval is routine. You are paying a point or two more than the best file in the room and you will probably never be told that.
• Fair, 620 to 669. Roughly 8.99% to 14.99%. Still bankable, but the rate starts to hurt over a long term, and the term is where it hurts.
• Building, under 620. Roughly 10.99% to 29.99%, and the top of that range is a floor rather than a ceiling. Approval usually still happens. The question stops being whether and becomes at what price.

Two things move every one of those bands. A used car prices above them, because lenders carry more risk on collateral that has already been driven, which is why the worked example below runs a little hotter than the table. Manufacturer promotional rates on new cars move the other way and can undercut every band here, occasionally down to zero, which is how a new car sometimes finances cheaper than a used one.

Most dealers and lenders set a minimum in the mid-600s for standard approval, which is where the folk wisdom about "you need 650" comes from. Below it you are handed to a different desk with different lenders and different pricing, not shown the door.

We never show you a single rate for a band, and we never will. A rate presented as one number reads like an offer, and only a lender can make you one of those.

What the band is actually worth

Rate differences look small as percentages and land hard as money. Here is the same car, the same down payment and the same term, priced through all four bands.

That last line is worth reading twice. Nothing about the car changed. Nothing about what you can afford changed. The only thing that moved is what a lender concluded from your file, and it is priced like a second down payment.

Soft pulls, hard pulls, and what actually costs you points

This is where most of the fear lives and most of it is misplaced.

A soft pull is a look at your file that does not affect your score. Checking your own score is a soft pull. So is a prequalification: the Canadian standard, which Clutch and Canada Drives both run, takes about ten minutes and gives you a loan amount and payment terms preview, with Clutch’s offer valid for 30 days.

A hard pull is a lender formally assessing you for credit, and it does show on your file. Here is the caveat the prequalification pages state and most people skim: the prequalification is soft, but the submission to actual banks downstream may become a hard check. Getting prequalified does not commit you to that, and it is worth knowing where the line is before a dealer sends your application to eight lenders at once.

If your band is lower than you would like

Two things move the number and one thing moves the price without touching the number at all.

Payment history and how much of your available credit you are using do most of the work on the score itself, and both take months rather than weeks. If your purchase is genuinely six months out, that is enough time to matter.

The thing that moves the price now is the size of the loan. A larger down payment, a cheaper car, or a shorter term all shrink what the rate is applied to. On a low band, a shorter term is the highest-value change you can make, because a high rate over 84 months is where this gets genuinely expensive.

Put your honest band into the calculator rather than the one you hope for. A pleasant surprise at the dealership is a good day. An unpleasant one is a renegotiation you did not budget for.