If you have bad credit, opening any type of loan can be intimidating, but sometimes opening an auto loan is unavoidable. Vehicles are required in nearly every facet of life these days, which is why it’s logical to consider if a new car loan could help you build credit. Fortunately, while a stronger credit history will help you obtain an auto loan from most lenders in Canada, it’s also likely that you will be able to use a car to build credit.
Short-Term Impact of a New Car Loan
It’s common to think that you can build credit by obtaining a car loan, but the truth is that most people see their credit score drop mildly after signing a new auto loan. This is because any credit inquiry will result in a lowered credit report score - unless you get approved through FFUN Financial where we can look at your approval without impacting your credit score. This is because (most) lenders will perform a hard inquiry before approving your loan, and any credit pull usually causes a credit score to drop by a few points.
Long-Term Impact of an Auto Loan
The good news is that while your credit may drop temporarily following a credit check, over time you can benefit from carrying different types of credit including an auto loan. As you pay down your loan, your credit utilization ratio will improve, and this can help you get closer to a good credit score. In addition, if you make your car payments on time, this can help boost your credit score and help your creditworthiness.
Protect Your Credit Score & Your New Auto Loan
However, it’s important to note that holding a loan from a dealership alone is not enough to boost your credit score. Missed payments or late payments can actually hurt your credit score and potentially cause the dealership to repossess your car. Therefore, before taking a new car loan for a new or used car, it is important to look at your budget and make sure that you can afford the vehicle. Try FFUN Financial’s fancy car loan calculator to get an idea of what your payments might be. If you are capable of fitting monthly payments into your budget, then regular on-time payments will boost your credit score long-term. If you are looking at lenders for a new auto loan, contact FFUN Financial for a quick and easy way to streamline the process.
