Common Car Loan Requirements: For Good and Bad Credit

May 7, 2019 / ,
Average reading time: 4 minutes
Author: lendinguser

When it comes to living in Canada, there is one thing almost all Canadians have in common, the need for access to convenient transportation. For the majority of us, this means purchasing a car to take us from point A to point B. Whether it’s a brand-new SUV or a used hatchback, a reliable vehicle and affordable financing are a must.

Applying for a car loan may seem like a daunting task, but it doesn’t need to be. The key to a successful car loan application is making sure you meet the necessary requirements. Keep reading for everything you need to know about the most common car loan application requirements. Whether you have good credit or bad credit.

Minimum Requirements

Regardless of your credit score, any consumer looking to apply for a car loan will need to meet these minimum requirements:

Minimum Requirements For A Car Loan in Canada

Minimum Requirements For A Car Loan in Canada

  • – Valid driver’s license. To get the financing you need to purchase a car you’ll have to provide proof of a valid driver’s license to your lender.
  • – Age of majority in your province. All provinces require potential borrowers to be the age of majority.
  • – Active bank account. Most lenders require automatic payments to be debited from an active chequing account.


As a side note, if you’re currently speaking to or working with a lender that does not require any of these, you may want to reconsider. This could be a sign that you are trying to be scammed. All lender’s, even if they conduct their business online or cater to credit constrained consumers, should have these minimum requirements. If it feels too good to be true, it likely is.

Income Requirements

If you have bad credit and are looking to apply for a car loan, your income will likely play a major role in your approval process. A steady income will illustrate to a lender that you can, in fact, afford a car loan, regardless of past financial missteps that led to your bad credit (trying to figure out how large of a car loan you can afford? Click here).

Lenders set income requirements to make sure their potential borrowers can afford to take on a car loan. At the end of the day, most lenders are not looking to put a consumer into a financial situation they can’t handle. While this will vary from lender to lender, you can expect most bad credit car loan providers to require a minimum monthly income of $1,500 to $2,000.

Your lender may also take into consideration…

  • – Your debt-to-income ratio. How much money do you make compared to how much debt you have? If your ratio is more than 50% you may have a difficult time getting approved.
  • – Your payment-to-income ratio. Most experts say that your car payment should take up no more than 10% of your monthly income. While a lender may accept a slightly higher ratio, too high will make the loan unaffordable.


If you have good credit, income requirements may not be so important. But, keep in mind it’s all about balance. If you have great credit but a very low income, you’ll still likely have issues getting approved. Lender’s need to know you can afford your loan payments, regardless of your credit.

Down Payment Requirements

Car Loans For Good & Bad Credit

Auto Financing For Good & Bad Credit

Anyone thinking about applying for a car loan should have a decent down payment saved up. How much will depend on the car you want to purchase and the health of your credit. As a general rule of thumb, a 10% down payment is a great place to start. But, the larger your down payment, the smaller your loan will be, the less you’ll pay in interest, and the quicker you’ll be debt free.

Consumers with poor credit should try to up their down payment to 15 or 20%. This will provide your lender with peace of mind, increase approval chances, and decrease the amount you need to borrow.

Credit Score Requirements

We’ve discussed a lot about what requirements both bad credit and good credit consumers need to meet when applying for a car loan. But, how do you tell if you have good credit or bad credit?

What is good credit?

Generally speaking, if you have a credit score of 650 or more, you have good credit. Credit scores in Canada range from 300 to 900, the closer you are to 900 the better credit you have. If you have a score of 650 or more, you should be able to apply for a car loan at a traditional lender, for example, a bank, and get approved at a good rate.

What is bad credit?

A credit score of less than 650 means you’re on the lower end of the spectrum. If your score is in this range you may need to work with a lender that specializes in working with bad credit consumers.

Finding The Right Car Loan For You

These are the most common requirements that anyone looking to apply for a car loan should be aware of. But, it’s also important to note that all lenders have their own approval process and set of requirements or conditions that need to be met. If you’re currently struggling with credit issues and are in the market to purchase a new car, LendingArch can help find you the right car loan to meet your needs.

This article was contributed by Loans Canada, Canada’s loan search platform.

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