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How does the Canadian Car Loan Market Work?

How does the Canadian Car Loan Market Work?

Posted by on Apr 05, 2022 - Archived under Uncategorized

Most people do not know how the Canadian car loan market works, so we are going to give you a look behind the curtain, so you have a better understanding of how this billion-dollar market works.

 

Prime and subprime credit

 

The Canadian car loan market’s loan types can be categorized as prime or subprime depending on the type of borrower they specialize in.

 

Prime lenders focus on giving borrowers the most competitive interest rates; the borrower must have pristine credit in the 720 range or higher to access these favorable interest rates.

 

Along with having a high credit score, the borrower will also need to have a stable income that is easy to substantiate.

 

Subprime lenders cater to borrowers with income that is hard to prove or bad credit.

 

These borrowers tend to have a credit score of 600 or lower; the borrower would be required to pay higher interest rates and not be able to borrow enough money to pay for a brand-new vehicle.

 

Some lenders cater to both types of borrowers, but those are few and far between.

 

How these lenders access capital to issue loans

 

Prime lenders tend to be chartered banks that have access to the Bank of Canada and can borrow money at prime rates.

 

Since these banks have direct access to the best interest rates, they can pass the savings on to their customers and generate profit by offering a loan to a vast number of borrowers.

 

The subprime lenders are not able to tap into the liquidity offered by the Bank of Canada.

 

What these lenders do is raise capital through the stock market and ask their investors to add capital. Since these lenders’ loans carry added risk, they must offer a higher interest rate. These added costs are absorbed by the consumer who takes the loan.

 

Income verification makes all the difference

 

While your credit score is important, lenders will also look at your income to determine what you can and cannot afford.

 

Lenders will not issue a loan if your debt-to-income ratio is 40% or higher.

 

This is calculated by taking your total gross income and multiplying it by 40%; if your debts plus the proposed car loan are greater than that amount, the loan will not be approved.

 

Lenders will need to see proof of your income, the way they do that is by looking at your salary slips and income tax notice of assessments.

 

If you have a large amount of income, the lenders will not focus as much on your credit score.

 

Who has the best deals in the Canadian Car Loan Market?

 

If you want to access the best deals on a new car loan, they cannot be found online; you need to work with a local dealership.

 

The dealership has access to lenders that cannot be found online or anywhere else. In addition, the dealership will be able to help you with any credit challenges you might have, so you need to reach out to them quickly.

 

Click here to get approved for your next car loan online today! we have a team of credit specialists ready to help you find a vehicle suited to your needs and will work with you no matter your credit score. 

 

For any questions or concerns, please don’t hesitate to contact us here! 

 

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