How do a credit score affect my car loan rate in Canada?

In Canada, your credit score is a critical factor lenders use to assess your risk profile when applying for a car loan, directly influencing the Annual Percentage Rate (APR) you'll be offered. A higher credit score, typically above 680-720 from bureaus like Equifax or TransUnion, signals to lenders that you are a reliable borrower with a history of managing debt responsibly. This lower perceived risk translates into more favourable interest rates, potentially saving you thousands of dollars over the loan term, especially in the current 2025 market where overall interest rates remain elevated compared to historical lows.

Conversely, a lower credit score, particularly below 600-620, places you in the subprime category. Lenders view these applicants as higher risk, leading to significantly higher interest rates to compensate for the increased likelihood of default. This means not only higher monthly payments but also a substantially greater total cost for the vehicle over the life of the loan. While provincial regulations ensure fair lending practices, the rate offered is fundamentally tied to your individual creditworthiness.

Why this matters: Even a difference of a few percentage points in your APR can dramatically alter your financial commitment. For example, on a $30,000 loan over 60 months, a 5% APR versus a 10% APR could mean paying thousands more in interest. Therefore, improving your credit health by consistently making on-time payments, reducing your credit utilization to below 30%, and maintaining a healthy mix of credit before applying can significantly enhance your borrowing power and secure a more affordable car loan.