How do lenders determine my interest rate?

While your credit profile is a major factor in determining your interest rate, there are also other other considerations that banks in Canada use when determining specific auto loans. Your monthly income, term of the loan and the specific vehicle all come into play.

Credit Score

According to Capital One, over half (57%) of Canadian’s have never attempted to obtain their Credit Score! What’s more, Canadians are horrible at guessing where they stand with their credit, it’s often better than they expected. Be informed!

Income

All Banks consider your monthly income because it determines what you can afford and your likelihood of making your payments on time. A typical rule lenders use is to never approve car payments in excess of 18% of your total monthly income. So, if you make $5000 Gross Monthly Income, if you attempted to apply for an auto loan and the payment was $1.00 higher than $900.00 per month, there is a good change the banks approval system would auto-decline the application.

Loan Term

Typically, the longer terms tend to have higher interest rates. Shorter terms can offer lower interest rates, but will come with higher monthly payments as it’s amortized over less time. We recommend trying to keep your term around 60 Months (5 Years) if possible.

The Vehicle

A vehicles value impacts both the loan amount as well as the risk associated with the loan. The vehicles’s VIN will be required to determine the exact program for that vehicle. Use tools like Black book to be aware of the value of your trade-in or the vehicle your looking to purchase.