How to Get a Car Loan After Bankruptcy

Because the Chapter 7 bankruptcy clause prevents an individual from declaring bankruptcy again for another eight years, auto dealers are actually fairly willing to offer five or six year car loans to those who have recently gone bankrupt. This is because there is no risk of the borrower defaulting as a result of bankruptcy before the loan term is up. However, there are certain things every borrower needs to know before applying for one of these loans.

Check Credit Reports

In order to get a car loan after bankruptcy, an individual will need to submit to a credit check. Before beginning the application process at a dealership, however, potential borrowers should request a credit report and check for any mistakes. After bankruptcy, these reports should indicate all of the debts that have been discharged by the Chapter 7 bylaws. This is an important detail for any auto loan lender, who will want to be assured that the borrower is not already burdened with other debt.

Pay Down Debt

When feasible, allow as much time as possible to pass between declaring bankruptcy and applying for an auto loan. During this time, try to pay down any debt that has not been wiped by the bankruptcy clause in order to improve credit scores. Then, request another credit check, since scores can alter significantly within this time period. Some car dealers will try to convince borrowers that they have a lower score than they actually do (in order to charge higher interest rates), so it is important to have an accurate credit report in hand before applying for a car loan.

Visit a Broker

Making an appointment with a loan broker can greatly reduce the amount of work and stress involved in attempting to get an auto loan after bankruptcy. These brokers work as mediators in the loan application process, speaking with different lenders to determine the requirements, conditions, and rates available to borrowers with a history of bankruptcy. A loan broker will work on behalf of the borrower, rather than for a particular lender, so they will also ensure that every loan applicant receives the best loan terms possible.

Make a Budget

While it is possible to get car loans after bankruptcy, there is a good chance that any available loans will come with high interest rates. For this reason, it is important to budget carefully in order to ensure that monthly car payments will be affordable. In fact, financial advisors recommend that those looking for an auto loan after bankruptcy should actually get loan approval before actually shopping for a vehicle. This way, borrowers will have a more accurate picture of their budget, their estimate interest rates, and the kind of car they will be able to afford.

Research Dealerships

People who have recently declared bankruptcy may actually be inundated with loan offers from lenders who want to take advantage of the opportunity to charge high interest rates. Therefore, it is important to research local dealerships and lending institutions before trying to get a car loan after bankruptcy. Additionally, it is generally not a good idea to fill out online applications. Lenders or dealerships who offer these will automatically run credit checks once the application is submitted, which will actually lower credit score and reduce the chances of receiving good loan terms.

Negotiate

Expect to negotiate with dealers over the price of the vehicle. First, choose an inexpensive car (used cars are probably the best option), and try to get the dealer to lower the price of the car as much as possible. Dealers—especially at used car lots—often significantly raise the ticket price on the vehicle, expecting to “haggle” with the customer. After arriving at a price, make sure that the dealer does not try to include any hidden fees in the payment plan, and ensure that the interest rate is in line with your credit ratings.

Make Regular Payments and Refinance

After being approved for an auto loan, it is essential that borrowers make all scheduled car payments on time, in order to prove to lenders that they are still financially responsible committed to rebuilding credit history. This will also open up opportunities for refinancing options, which are generally offered 6-12 months after purchase. If after this time period all payments have been made on time, a borrower’s credit score will improve, and interest rates will decrease. Opting to refinance a car to obtain these lower rates can reduce monthly payments and save hundreds of dollars over time.

In summary, while it is much easier to get a car loan after bankruptcy than some people believe, it can be difficult to get approved for an auto loan with good terms. Therefore, it is important to plan carefully before beginning the application process, and then diligently pay down debt and take advantage of refinancing offers during the repayment process. This will not only help save money in interest and fees, but will help to gradually rebuild credit ratings.

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