requirements for a car loan in canada

Requirements for a Car Loan in Canada: How to Guarantee Approval

Posted by on Feb 05, 2024 - Archived under Uncategorized

If you’ve started your search for a vehicle, it’s important you come to the dealership prepared. So, what are the requirements for a car loan in Canada?  If you have bad credit, you should be sure you have all the requirements covered before you start applying for car financing.  Let’s look at what they are.

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Credit Score

There are lenders who specialize in providing loans to people with bad credit (like us!).  They still want to know what your score is before they will approve you.


By looking at your credit history report, lenders can see if you’ve been working to improve your low score.  They may factor that in more than the actual number.

credit score ranges


Make sure you have at least a few months of solid payment history before you apply for a car loan.  This means paying your rent, credit card bills, and any other monthly bills on time and in full every month.


Payment history is the biggest aspect of credit score calculations so be sure to keep that up.


how credit score is calculated


The key to accessing a car loan is having proof that you’re working and can pay the loan back. Since your credit history is weak, the lender will need other ways to judge the risk of lending to you.


It’s possible to get a loan if you’re a part-time or contract worker, but it’s much more difficult than if you have a full-time permanent position.


Be prepared to offer proof of employment to the lender during the application process.



The higher your income, the better your odds of approval. Providing proof of income and employment is a min requirement when applying for a loan in Canada, so have at least three months of bank statements or pay stubs available.


Aside from just how much you make every month, the ratio of your debts to your income also comes into play.  This refers to the percentage of your income already being used to pay off debts.


Ideally, your debt-to-income ratio should be below 35%. If you’re still building your credit score back up though, some lenders will allow a ratio up to 50%.

Assets or Collateral

Assets can help you get approved for a loan when you have bad credit.  It depends on the nature of the asset: is it a liquid asset like a savings account or stocks?  Or is it non-liquid like your home?


When you have some liquid assets in your portfolio it shows lenders that if the worst happens, like you lose your job, you’ll still have access to funds to make your loan payments.


Collateral is a way for the lender to secure the loan. Regarding car loans, the car is the collateral, so you don’t need to offer anything else.  If you can’t make your loan payments, the lender will have the car repossessed to recoup their losses.


This is why it’s important to ensure you can cover the loan payments before you sign into any agreements.  You don’t want to get into debt over your head and lose your vehicle.



This is not always one of the car loan requirements, but having someone (with good credit) that you trust co-sign on your loan will increase your chances of approval. 


Remember before you take this route that if you don’t make the payments, your co-signer is responsible for them. 


Always be sure your co-signer can be trusted and that they trust you and want to help you get into a better financial position.


Down Payment

Generally speaking, a down payment is a requirement for any large loan in Canada whether it’s a car or a mortgage.  Providing a down payment decreases the amount of the loan you need to take out. 


It also reduces your monthly payments by covering a portion of the cost upfront.


20% down is pretty standard for vehicle purchases. It can be difficult to save that money, especially if you’re in the process of increasing your credit score. 


If you can wait a little longer to get a car and save up some more in the meantime, it can be the difference between having your loan approved or denied.


The best thing you can do when applying for a car loan is be prepared.  Get all your ducks in a row before you even consider applying to lenders.


Check your credit report, set a budget, get whatever paperwork you need together, and have a plan.


When you’re ready to start shopping, Dixie Auto Loans is here for you.  You can apply for financing with a team you can trust, and get started shopping for your next car online.

Dixie Auto Loans