It may seem that getting any kind of loan after you’ve been declared bankrupt should be considered some kind of pipe dream. But even when a new car is needed, bankruptcy options are available. In fact, with a sensible approach and a strong enough application, getting a car loan after bankruptcy is quite easy.
Of course, there are conditions to your bankruptcy that must also be considered, most notably the chapter under which your case was filed. For example, Chapter 7 bankruptcy generally means that the availability of credit is cut off for 12 months, while under Chapter 13, applicants may have to wait 2-4 years before they can expect to be approved despite bankruptcy.
In general, bankruptcy will affect your creditworthiness for about 10 years, but within that time it’s possible to get an auto loan, and what’s more, sooner rather than later. But what are the points to consider when it comes to securing one?
1. Be patient and wise
Just because financing is available to buy a new car, it would be foolish to look for the maximum amount possible. After all, lenders are more likely to grant a car loan after bankruptcy if the applicant shows genuine regard for their responsibility to repay the loan.
So forget buying a $30,000 sports car and focus on a modest set of wheels. Getting a used car is your best bet. If a budget of perhaps $10,000 is applied, the chances of getting approved despite bankruptcy are greatly increased.
Also, spend some time getting your financial situation in order before trying to get an auto loan. Make sure your bank balance is in relatively good shape and there are no outstanding bills.
Find a lender that offers a deal
Traditional lenders are often not open to the idea of providing auto loans after bankruptcy, so you may need to look into some of the alternative sources of loans. The best option is an online lender, and with the comparison sites out there, it’s easy to find a competitive loan in seconds.
Still, even when it’s heavily listed, take the time to check the reputation of the particular lender on the Better Business Bureau website and make sure it’s legit and trustworthy. Unscrupulous lenders often use the promise of loan approval despite bankruptcy to lure the public.
Finally, be sure to read the fine print on any car loan agreement. There may be hidden fees that turn what seems like a lot into an expensive one.
Other steps worth taking
There are a few steps you can take that can lower your overall costs when looking for a car loan after bankruptcy, and
even provide some security to alleviate lenders’ concerns. Making a down payment is one way to reduce the size of the loan needed, with a 10% payment being the most common.
However, when dealing with the car dealer itself, keep in mind that a down payment is never required. Some unscrupulous dealers will say yes, but this is not the case at all. It is up to the buyer to decide if he wants to do it and to decide how much. But of course with one it is easier to get approved despite bankruptcy.
Finally, by adding a co-signer to your application, auto loan approval is virtually certain. This is because the co-signer acts as a guarantor, so the probability of default is practically reduced to zero. Keep in mind, however, that a co-signer must have an excellent credit history and a good enough income to be accepted.