Get A Car Loan After Bankruptcy

Get A Car Loan After Bankruptcy

Bankruptcy is a position when you have lost all your assets and cannot further continue operations of business. If you go bankrupt then that would severely affect your Credit score and credit history. This means that in the future you might face problems applying for any sort of Loan be it a house Loan or an Auto Loan. Why most people file for bankruptcy is because they wish to get out of their debt and get on the track which could improve their financial outlook.  Since going bankrupt would make life difficult for you, then you would have asses some options which might help you get an Auto Loan.

getting a car loan after bankruptcy

If you go bankrupt then as mentioned above that would put a negative mark on your Credit.

Having a negative mark would mean that you local dealer would now be no longer in a position to offer you an Auto Loan, however if they some special finance department which could help you in your case then you might get lucky. What they would do is that they would send your application file to a bunch of other dealers and banks for it to be reviewed and hope that you might get lucky and get a good response from at least one lender.

However, one practical solution to this problem would that you find a person who is a financial manager and who specializes in such cases. If you find such a person then they might help you find a lender due to their experience in this field which would make sure that you get your Auto Loan despite having a negative mark on your Credit.

Getting a Car Loan after Chapter 7 vs. Chapter 13 bankruptcy

There are two kinds of bankruptcy that individuals can file: Chapter 7 and Chapter 13. The type of bankruptcy you file for and the amount of time since you filed could affect your ability to get a Car Loan.

With a Chapter 7 bankruptcy, some of your possessions and property can be liquidated in order to repay outstanding debts, and certain debts may be discharged. This type of bankruptcy can take about 80 to 130 days to complete, from the initial filing to the discharge of debt, and can stay on your Credit reports for up to 10 years from filing.

A Chapter 13 bankruptcy, on the other hand, involves repaying debts and is also known as a wage earner’s plan. With Chapter 13, you create a plan to repay all or part of your debt within three to five years. This plan, which must be court approved, usually involves you paying a fixed amount to a trustee on a regular basis, typically biweekly or monthly. You can expect a Chapter 13 bankruptcy to remain on your Credit reports for up to seven years from filing.

While a bankruptcy can be bad news for your Credit scores, getting approved for a Car Loan is still possible. But before you start applying, you’ll want to wait until after your bankruptcy is finalized.

Considerations with a Car Loan after bankruptcy

Get A Car Loan After Bankruptcy
Get A Car Loan After Bankruptcy

Your Credit reports are a history of how well you’ve managed your finances. Unsurprisingly, bankruptcy will lower your Credit scores.

The effect on your scores depends on your Credit before bankruptcy. If you had high Credit scores and a good Credit history, you’ll likely see a significant drop in your scores. But if your Credit wasn’t strong to begin with, the impact to your scores may not be as big. Another factor is the number of accounts included in your bankruptcy — the more accounts included, the bigger the hit to your Credit scores.

These changes to your Credit can pose some problems as you try to qualify for an Auto Loan.

Difficulty getting approved

Some lenders may be hesitant to give you an Auto Loan, but there are financial institutions that specialize in working with people who have subprime credit or a bankruptcy in their past.

If you’re having trouble getting approved for a Car Loan, you might be tempted to get one through a “guaranteed” or “no credit check” Auto lender — these lines of Credit are commonly known as “buy-here, pay-here” loans. But beware: If a type of Loan sounds too good to be true, it probably is.

These buy-here, pay-here loans are typically offered by dealerships with in-house financing and may not require a Credit check. This may seem like a great solution if you’re struggling to get approved elsewhere. But these loans usually come with higher interest rates than those offered by other lenders, and you might end up with a loan for more than the vehicle is worth.

High interest rates

If you’re approved for financing, expect higher interest rates on your Car Loan than if you hadn’t filed bankruptcy. How high? The average new-car Loan interest rate for those with Credit scores between 501 and 600 was 10.36% in the third quarter of 2020, according to Experian’s State of the Automotive Finance Market report. In comparison, the average rate for those with Credit scores of 781 to 850 was 2.51%.

How to get a Car Loan after bankruptcy

Before you set foot inside a dealership or apply for financing, here are four things you can do to help improve your chances of getting approved a Car Loan.

1. Check your Credit

Checking your credit reports is a great way to review your financial health. You can request your free Credit report from each of the major consumer Credit bureaus — Experian, TransUnion and Equifax — once a year on AnnualCreditReport.com. You can also check your VantageScore 3.0 scores from Equifax and TransUnion on Credit Karma for free. But keep in mind that these scores may not be the same scores a lender uses when checking your Credit.

The Consumer Financial Protection Bureau recommends checking your Credit reports at least once a year, and before a major purchase like a Car. Make sure the information on your reports is accurate, and dispute anything that isn’t.

While there’s no universal minimum Credit score required to get an Auto Loan, you’ll likely have difficulty getting approved by some lenders if your Credit scores are low.

2. Rebuild your Credit

Once you’ve reviewed your Credit reports and scores — and if you’re able to wait to buy a Car — consider taking time to repair your Credit if you need to. This could help you get approved for a Car Loan at a lower interest rate. A secured Credit card, credit-builder Loan or becoming an authorized user on a friend or family member’s Credit card could all help you begin to rebuild your credit.

3. Save for a down payment

down payment can increase your chances of getting approved and could reduce your interest rate. There’s no set amount that you should put down for a new Car, but the general rule of thumb is that you should put 20% down on a new Car.

4. Shop around

Get A Car Loan After Bankruptcy
Get A Car Loan After Bankruptcy

When you’re ready to buy, shop around for the best Auto Loan offer. Compare rates and Loan terms from different lenders to help find the best deal for your financial situation.

Getting preapproved for a car loan can also help you get a sense of the Loan terms you might be approved for. A preapproval is a conditional offer that typically includes an estimated Loan amount, interest rate and Loan term. But remember, preapproval doesn’t guarantee that you’ll get the Loan — you’ll need to submit a formal application to know if you’re approved and at what terms.

If you’re still unable to get a Car Loan, you can also consider getting a co-signer with strong Credit to increase your odds of being approved for the Loan, or to even get a better interest rate.


Bottom line

After filing for bankruptcy, your best bet is to wait to rebuild your Credit before applying for a Car Loan. But if you must buy now, shop around to find an offer that fits your budget and needs, and then focus on making your monthly Car Loan payments on time to help build your Credit.

Once your Credit has improved, you may be able to refinance your car loan and get a better interest rate down the road.