How To Get Car Loans After Bankruptcy
A few years ago when the recession was at its peak, no lender would have offered you any financing if you had filed for bankruptcy. The good news is that you can now get all sorts of financing, from bridging loans to car loans. However, with your financial history you should expect some special considerations before your loan is approved.
Order of Discharge
Your loan application will be very difficult to get approval from the loan officer if your bankruptcy case is not yet over. Nevertheless, if you already know the date of the order of discharge, then the loan may still be approved.
Expect Higher Interest Rates
As someone who has recently been declared bankrupt, financiers will view loaning you money as a high risk endeavor. Thus, they will try to protect themselves by charging you a higher interest rate compared to what they would charge someone with a perfect credit history. Additionally, expect to get a loan with shorter repayment duration. To reduce your interest charges, you can pay a down payment then pay all fees and taxes in cash. You can also opt for a shorter repayment period with larger installments. However, make sure you are able to manage the payments.
Some lenders may require you to pay a substantial down payment for the item you have taken. Even though there are lenders who will offer you a post-bankruptcy bank loan, they will charge hefty interest. Save up if necessary so you can afford the deposit in full. This way, you will reduce your total interests charged.
As someone stepping out of a bankruptcy case, getting a secured loan is much easier than getting an unsecured loan. For that reason, getting a credit card account may be a lot tougher than getting a car loan. This is because with a car loan, the car acts as collateral. Use such a loan to rebuild your credit by making timely payments as you service the loan.
Co-Signer or Guarantor
To increase the chances of your bridging loan getting approved and possibly increasing the speed of processing the approval, it may work in your favor to ask a friend or family member with good credit rating to be your co-signer. Not only will this increase the chances of your loan application being approved, it may also result in a cheaper loan with easier repayment terms.
Look for bargains
When coming out of a bankruptcy case, it is best if you avoid making any large financial commitments. If you can do without a car, then you would be better off not taking on the car loan. However, if you really do need the car, you better look for a bargain. Avoid the top of the range vehicles and look for something cheap and comfortable. On the other hand, also avoid buying a car that is approaching the end of its lifetime. This is because whatever savings you make on the purchase price may end up getting exhausted by numerous and frequent repairs. Therefore, you have to judiciously balance between value and price.
Yes, it is possible to get a car loan even after you have been declared bankrupt. However, you may get slightly disadvantageous terms and a more rigorous approval process compared to someone who has a good credit rating.
Purity Watkins is a bridging finance advisor with over 13 years of experience. She specializes in home and property financing for individuals.