Bankruptcy relieves the borrower from their suitable debts and allows for a fresh financial start; however, while bankruptcy does not block you from borrowing again, it limits the lenders and loans you can access.
Although credit bureaus remain at least six years before removing your credit report’s bankruptcy mark, acquiring a car loan before then is still achievable. The reality is that banks are not likely to endorse car loans for people who have filed for bankruptcy, as it generally means they have bad credit. In many scenarios, one is discharged from bankruptcy after nine months. But banks are even tired of approving a car loan shortly after your discharge from bankruptcy because your credit score will still be low.
In many cases, car loans differ from traditional loans in the way that the car itself can act as collateral. Securing a car loan after bankruptcy might be challenging, but you have various options.
Steps to Take Before Applying for a Car Loan
Credit Rebuilding
Try to improve your credit if you have some time to spare before applying for your car loan. Even if you do not have good credit, you can follow steps to improve it slowly.
Monitor Your Credit Score
Credit bureaus are not always perfect. Credit bureaus forget to acknowledge debts paid on your credit report. Credit bureaus might even put someone else’s debt history on your credit report if your names are identical! So, credit monitoring is crucial as it enables you to catch errors that may affect your credit rating. TransUnion and Equifax offer credit monitoring services, allowing you to check your credit report regularly.
Utilization of Credit Building Products
Some financial institutions offer specific credit-building products to rebuild your credit. Another way to enhance your credit is to apply for a secured credit card, as they provide an opportunity to produce a positive credit history without risking more debt. Moreover, secured credit cards are more accessible than unsecured ones if you have bad credit since you have collateral.
Complete Your Minimum Payments
During bankruptcy, it’s vital to avoid sinking deeper into bad credit. Set alarms or reminders on the days your charges are due, restrain your spending, and avoid the temptation of raising your credit limit. Do whatever you need to confirm you make all your monthly minimum payments on time.
Compare Car Loan Providers
Many alternative lenders and dealerships offer financing on a new car besides banks. Before buying a car, compare the interest rates and loan terms across lenders, and be confident to negotiate. Negotiation often requires confidence and initiative, but knowing what the market is like and what competitors are offering is enough to begin a negotiation conversation.
Save for a Bigger Down payment.
When reviewing your loan application, lenders like to see something to help compensate for your poor credit score after you declare bankruptcy. 20% is a standard down payment amount for a car loan. Some lenders offer financing with 5% or sometimes even 0% down, which costs you higher interest rates. A larger down payment reduces the risk a lender assumes in lending to you. It can also improve your chances of securing an auto loan and more favourable interest rates.
So, bankruptcy only lasts for a while. Bankruptcy indeed arrives with a few monetary challenges, but those challenges are manageable. Besides increased interest rates and restricted loan options, people who declare bankruptcy can still obtain car loans. If you are still struggling to know more, contact Dana MacRae, Licensed Insolvency Trustee, for a free and confidential consultation.