Yahoo Autos Can you get a car loan after bankruptcy? Learn about your options.
If you've recently declared bankruptcy, getting an auto loan is difficult, but not impossible. Filing for bankruptcy affects your credit score, which makes you a less favorable borrower in the eyes of many lenders. However, there are ways to get approved for an auto loan even with a Chapter 7 or Chapter 13 bankruptcy on your record.
Can You Get a Car Loan after Bankruptcy?
Yes, you can get a car loan after bankruptcy. But because of the financial hardships that often lead to bankruptcy, lenders who do approve you will almost certainly charge a high interest rate.
You'll want to shop around and find a lender that works with Chapter 7 or Chapter 13 bankruptcies. Keep in mind that these lends may be considered subprime, which means they work with borrowers who have less favorable financial backgrounds.
Can You Buy a Car During Active Bankruptcy?
It's very difficult to buy a car during active bankruptcy, and most borrowers require a court's permission to take out additional loans during that time. It's usually better to wait until the bankruptcy filing is complete to take out a loan, if possible.
Generally, a Chapter 7 bankruptcy is completed in four to six months, whereas a Chapter 13 bankruptcy takes up to five years to complete. Even after your bankruptcy file gets discharged, some lenders might require you to wait an additional 12 to 24 months to apply for an auto loan.
How Bankruptcy Affects Your Car Loan Eligibility
Lenders consider borrowers with previous bankruptcy to be high risk. Essentially, it means the lender is fearful that the borrower will take out a loan and default on their payments. In that case, the lender has to repossess the car and get their money back.
Filing for bankruptcy has a negative impact on your credit, which is how lenders determine if you're a good borrower. If you have a high credit score, you are typically given the most favorable interest rates. If you have poor credit (which is common after a bankruptcy filing), the lender might charge you a very high interest rate, or they might not approve your loan at all.
Chapter 7 bankruptcy stays on your credit report for a maximum of 10 years and a Chapter 13 bankruptcy filing stays on your credit report for up to seven years. Once the bankruptcy has been removed from your credit report and your score improves, it's much easier to get approved for an auto loan.
How to Get a Car Loan after Bankruptcy
Here are a few ways you can qualify for a car loan after bankruptcy:
Work with a Subprime Lender
Subprime lenders work with borrowers who have low credit or have filed for bankruptcy. If your credit score falls between 580 and 619, choosing a subprime lender might be a good option, according to the Consumer Financial Protection Bureau (CFPB). Working with a subprime lender doesn't guarantee that you'll get approved. However, the eligibility requirements are less strict.
Apply Through Your Credit Union
Credit unions have different requirements than traditional banks and other lenders. Call your local credit union to find out if they can help you get a car loan after bankruptcy. It's also possible that a credit union might be more willing to approve your loan if you're already a member of their institution.
Improve Your Credit Score
Improving your credit score is one of the best ways to get approved for an auto loan after bankruptcy. To raise your score, prioritize paying your credit card bills and other loan payments on time and in full. Using less of the credit you have available can also boost your credit score. In addition, you might think about working with a nonprofit credit counseling agency if you need help more assistance improving your credit after bankruptcy.
Compare Lenders
Comparing multiple lenders will improve your chance of approval after bankruptcy, and it can also help you get the best auto loan rate for your situation. However, be mindful of the types of lenders you're comparing. For example, some lenders advertise "guaranteed approval" auto loans, but they typically have enormous interest rates and high payments, especially for borrowers with poor credit.
Should You Take Out a Car Loan after Bankruptcy?
Whether you should get a car loan after bankruptcy depends on your unique situation. For example, you might need to buy a car after bankruptcy to get to and from work. But just because it's possible to take out a car loan after bankruptcy doesn't mean you should.
A car is a major purchase, and most people who file for bankruptcy aren't in the best place financially. If you absolutely need an auto loan, make sure to consider how it fits within your current financial obligations and compare lenders to find the most affordable monthly payment.
You Might Also Like
