Getting a Car Loan After Bankruptcy

Getting a Car Loan After Bankruptcy

By TLB Contributing Writer: Alden

So, you’ve just filed for bankruptcy protection and as if things weren’t already bad enough, the car you were counting on to get you back and forth to work suddenly needs very expensive repairs. In fact, the way it’s looking, you’ll probably be better off buying another car. The good news is getting a car loan after bankruptcy is doable. Here’s what you need to know.

Interest Rates Will Be High

That bankruptcy is going to be pretty prominent on your credit report, so any lender open to working with you is going to want assurance that if things go sideways they made as much money as they could off of the deal.

In the scenario above, you’ll probably need to get a car as soon as possible. But if you can give yourself a bit more time, between filing and asking for a loan, the better off you’ll be. Establishing a couple of credit accounts, like secured credit cards for example, and managing them well will make your track record look better.

How to Get the Best Terms Possible

The more time you can put between the bankruptcy filing and the loan application, the better off you’ll be. Whenever possible, you want to give yourself some time to show you can handle credit responsibly.

You’ll also look better to a lender if you can offer a large down payment. The more you can put down, the less risk you’re asking them to assume. As a result, you will usually get a break on the interest charges.

Lenders look favorably upon co-signers with a strong credit history. If you can get someone to step up on your behalf in this regard, you’ll be in great shape.

Whatever else you do, read the loan contract carefully. Avoid hidden fees and add-ons, as well as anything that’s “contingent”, “adjustable” or “conditional”. You want a fixed rate loan with a consistent payment, so you can budget it and count on the payment always being the same.

Which Lenders are Likely to Work with You

After bankruptcy car loans are sometimes available when you’ve been doing business with the same bank. Give them a call; you might be able to leverage your long-term relationship to get some traction. Ditto your credit union.

Even a cursory Internet search will turn up a number of so-called “bad credit” auto lenders willing to work with people who’ve had to file for bankruptcy protection. Vet them carefully though to ensure you don’t fall prey to predatory lending practices.

Either way, try for a pre-approval so you’ll have the benefit of knowing the interest rate, loan amount, monthly payment and loan duration you can expect, before you go out shopping for a vehicle.

What to Buy

Avoid buying more car than you really need. This isn’t the time to splurge on a new car. Look for a dependable used model. You need reliable transportation that’s inexpensive to maintain.

Under no circumstances should you buy any car requiring financing for more than five years to make the payments affordable. Yes, you’ll get lower payments with a longer term, but you’ll pay a lot more in interest. You could also wind up making payments on another car that needs expensive repairs if you stretch it out too far.

Getting a car loan after bankruptcy is absolutely doable. But you have to be careful to avoid digging yourself a deeper hole out of which you’ll have to climb. The tips above will help you do just that.

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