How to Get an Auto Loan after Bankruptcy

Blonde woman in car with thumbs up holding keysAsking the courts to dissolve your past debt into nothingness through the bankruptcy process is not an easy choice or a quick solution. It takes time and effort to determine if bankruptcy is the right solution for your financial woes, and it has the potential to leave you high and dry once the process is complete. New lenders often look at bankruptcy, which remains on your credit profile for years into the future, as a negative aspect of your previous financial life. However, there are ways to move forward with new credit after the bankruptcy process is said and done.

If you’re in need of a car loan and have filed for bankruptcy in the past, there are a few things you should know before searching for the right auto financing.

Understand your Credit

It may seem counterintuitive to check your credit score or report shortly after bankruptcy, but it is a smart move if you’re planning to apply for an auto loan in the near future. While your credit score and overall financial history will take a significant hit because of a bankruptcy, not all is lost. If you’re able to show on-time car payments either prior to your bankruptcy filing or during bankruptcy repayment, the auto loan lender will see this as a positive sign moving forward.

Pay close attention to what your credit report says about past car payments, and be prepared to bring proof of consistent on-time payments for car loans if that information is not clearly stated in your credit history. Auto loan lenders are more willing to work with you to find an affordable financing solution if you have these details prepared in advance. You can check your credit report at no cost online.

Have a Down Payment

One of the benefits of bankruptcy is the clean slate you have now that your debts have been or are in the process of being resolved. That should have a positive impact on your overall cash flow post-bankruptcy, making it a little easier to set aside for a down payment for a new car. Although not all lenders will require a down payment as part of a new loan, it does show effort on your part and a head nod in the direction of financial responsibility. Having a down payment helps lenders see you are ready to take on new debt in a smart way, and the extra cash may also help lower your interest rate or monthly car loan payment for the duration of the auto loan.

Do your Research

Don’t be fooled by “bad credit” dealerships or lenders, as these are not your only options for securing a new auto loan after bankruptcy. Although these lenders may make the application process easy, they are also more apt to charge a significant amount of interest, funding fees, and late charges should you miss a payment over the duration of your loan. Auto loans are available to you, even with bankruptcy as a line on your credit report, from conventional lenders like banks and credit unions. These lenders may require additional information in order to verify income or past debts not included in the bankruptcy discharge, but understand that they do offer auto loans which may be more cost-effective than bad credit lenders.

Be Prepared to Refinance

Securing an auto loan after bankruptcy is possible, but the loan may carry a relatively high interest rate based on your financial history. Lenders see bankruptcies as a risk factor for future loans, and so they charge more in interest to safeguard themselves from loss should you fail to repay your loan on time or in full. If you end up with a high interest rate on your new auto loan, know that you aren’t stuck with it forever. Typically, paying your bills on time for six to 12 months after bankruptcy will result in a higher credit score and a cleaner credit history, which then allows you to refinance to a lower interest rate loan in the future.

Finding the right new auto loan after bankruptcy is easier than obtaining a home loan or a personal loan, but it still comes with a handful of challenges. Be prepared by understanding what bankruptcy has done to your overall credit profile, and bring proof to your lender that car payments weren’t part of the issue. Build up a down payment before applying for an auto loan, and make sure to check out all of your options before selecting a lender. Know that you aren’t handcuffed to your high-interest rate auto loan for the next four, five, or six years, but instead have the option to refinance as your credit history improves.

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Posted on January 5, 2017 by in Auto Lending

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