January 29, 2019

Bankruptcy Car Loan

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Buying a car after bankruptcy is possible. Today there are many ways that you can get car financing shortly after your bankruptcy discharge.

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Filing for bankruptcy isn't anything to be embarrassed about. Actually, you should be proud of yourself for recognizing that you were in a hole and you couldn't get out without assistance. Now that the bankruptcy is done, it's time to pick up the pieces, build up your credit, and get the car financing that you need.

How Long Do You Have to Wait to Buy a Car After a Bankruptcy?

The entire bankruptcy process (if you file Chapter 7 ) takes approximately 3 to 4 months. After those 120 days, you have a clean slate. All past due balances and debts you couldn't pay no longer exist. You also won't have much of a credit score left either, though.

The good news is that this effect doesn't last very long. While it's true that your bankruptcy will stay on your credit report for the next 10 years, the "main effect of filing" starts to dissipate after the first year. While you won't have perfect credit in a year, you can have better credit than you may have realized, especially if you put forth the effort to get there.

With the right steps, you could find yourself with a car loan after just a few months to a year after bankruptcy.

Your Options for a Car Loan After Bankruptcy

How much time passes and how much your credit score increases really determines where you'll go for your car loan after bankruptcy. You'll have the following options:

  • Subprime Lenders:
    Bad credit lenders or subprime lenders offer loans to borrowers that filed bankruptcy. Because they accept lower credit scores, they often charge higher interest rates. You can get the loan from a "bad credit car dealership" or a subprime lender. Just make sure you understand the terms and the full cost of the loan with the higher interest rate.

  • Buy Here, Pay Here Dealerships:
    Some dealerships offer what they call "in-house financing." You finance your car through the dealer rather than through a bank. Dealerships make their own guidelines and have more flexibility than a bank or financial institution may with an applicant with a recent bankruptcy.

  • Credit Unions:
    Credit unions also have flexible guidelines and often have niche programs for people with special circumstances, such as a bankruptcy. You can check with your credit union or credit unions in the area where you may be eligible to become a member.

Steps to Take Before Buying a Car After a Bankruptcy

Before you head to any of the above lenders to see about financing a car, you should take the steps below to increase your chances of approval.

  1. View Your Credit Report
    You can get a free copy of your credit report at www.annualcreditreport.com. You can get one copy of each of the three credit bureau's reports once a year free of charge. Use this opportunity to look at your report and make sure everything is accurate. Pay close attention to any accounts involved in the bankruptcy. Make sure they state that they were discharged in the bankruptcy.

  2. Improve Your Credit
    You may want to try a few other accounts before you apply for a car loan. A secured credit card can be a good place to start. Your credit line is equal to the deposit you put down on the card. As you use the card and pay it off, you'll boost your credit score with your financial responsibility. You can also apply for department store credit cards or credit cards with low credit score guidelines.

  3. Save Money
    Even subprime or in-house financing dealerships require a down payment. In fact, in-house financing dealerships base their approval on your income and down payment. It's safe to say that the more money that you have to put down on the loan, the higher your chances of approval become.

  4. Stabilize Your Employment
    If you need alternative financing, such as in-house financing dealerships or even subprime loans, they are going to need something aside from your credit score to rely on. Stable employment and income are two big factors that can turn your declined application into an approved application.

  5. Find a Co-Signer
    If you can't improve your credit enough or save enough money for a down payment, a co-signer can help increase your chances of approval. Of course, you should choose a co-signer with good credit and income, as well as someone who understands the consequences if you can't pay the loan.

How Long Does It Take to Get Good Credit After Bankruptcy?
It's not unusual to start receiving credit card applications or pre-approvals in the mail just a few months after your discharge. While you can open new credit cards or apply for new loans, you'll want to do it at a slow and steady pace so that your credit score has time to increase rather than get overwhelmed by all of the new credit.

Can You Lease a Car After a Chapter 7 Bankruptcy?

Believe it or not, you'll likely have a harder time leasing a car than buying one with financing after a bankruptcy. When you lease a car, the dealer relies on your credit score. Since it can take a few years for your credit score to bounce back to a "good" credit score, leasing may be out of the picture for the time being.

Instead, you should explore the options we discussed above, including subprime lenders or Buy Here, Pay Here dealerships.

Bottom Line

Getting a car loan after bankruptcy probably won't be nearly as hard as you thought. What you need to watch out for are the interest rates and fees.

While you are a somewhat "higher risk" because of your past bankruptcy, you've turned over a new slate. You've actually freed money up in your budget, making it easier to meet your obligations now. Don't settle for the first offer you receive; make sure it's a beneficial loan that won't cost you an arm and a leg before you take it.

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