More than half of the car buyers apply for a car loan or lease when they’re at the dealership. Here’s some useful information when they ask about rates. 

Most people know that their credit score affects their approval. There are many more variables involved than only the applicant’s credit score. Here are the most important factors when applying for a car loan:


Credit history 

There are two components that matter to the lenders: 

  1. History of borrowing money and paying it back on time. No credit leaves the lenders guessing about what the future behavior will be. Lenders want to charge a higher rate people with little or no credit because they will have difficulty predicting their behavior. For example, someone can have a high credit score but don’t have long enough history to put them in a lower risk category for the lenders. 
  2. Affordability: If the applicant can afford the payments based on their current debts, income, etc. If the applicant has a lot of debt and expenses, they will be seen as a riskier borrower, which results in a higher interest rate.

Overall, credit score is only a number. Score is only a screening factor. A high score means that a person has not made any mistakes with their credit but lenders don’t just look at your credit score and decide “approved” or “denied”. Our credit department will look at your credit, help you to get the best approval, and establish your credit for the future.

Debt-to-Income Ratio

Your debt-to-income ratio is all your monthly debt payments divided by your gross monthly income. This number is one way lenders measure your ability to manage the monthly payments to repay the money you plan to borrow. Lenders like to look at this ratio because it’s a good indication of how likely you are to pay off your new loan.

It’s also important to note that having debt can be better than having no debt, as lenders will be hesitant to lend to someone who cannot show any history of repayment.

 Vehicle Status

The car itself is considered as a collateral to secure the loan. Usually, older cars are less valuable to the banks. If the customer does not make their payments, the lenders will consider that as a riskier asset and charge a higher rate. Also, an older car will tend to become more expensive to maintain. Someone who’s already struggling to make their payments is more likely to default if the car requires repairs. When the banks do the analysis to calculate the interest rate, that’s a variable which contributes to their decision. Newer cars encourage lenders to offer lower rates.

Car Loan Terms 

Age and odometer are important factors that can affect the terms of the loan, such as interest rate, down payment, and amortization.

For example, the same person can be approved for a longer term and lower rate for a newer car, but might get a higher interest rate and shorter terms for another car. You can always reach out to us and discuss your customer’s options. 

Down Payment 

Down payment is equity towards the loan that offsets the bank’s risk. The down payment is a percentage of the purchase price of the car, that is paid upfront. Our underwriters will do their best to meet your customers expectations and get them the best approval based on their financial situation. 

Employment Stability

Lenders might ask for proof of employment, such as pay stubs, bank statements etc. Lenders will feel more confident in the applicant’s ability to pay back the loan. We are able to provide loans for many types of employment or in some cases non-employed . You can contact our licensed agents to discuss options.

The Economy

The economy is a big factor for lenders in determining interest rates. In times of economic distress, such as Canada’s 2008 recession, or this year’s COVID-19 pandemic, lenders change their programs according to the market and the risk exists. 


Ontario underwriters will be happy to answer all your questions about car loans and do a free, no obligation pre-approval for you. Which is a powerful time-saver.