Buying a Car After Bankruptcy
Bankruptcy provides a fresh financial start for millions of Americans. However, bankruptcy comes with a downside—shredded credit, which makes it very difficult for those who recently filed bankruptcy to get a loan, even for a necessity such as a vehicle.
Unfortunately, life does not stand still after bankruptcy. People still need a mode of transportation to help them get to work and to run errands, and often this means they need a car loan. In this article, we provide helpful tips for buying a car soon after filing for bankruptcy.
Learn How Bankruptcy Affects Your Credit Score
On average, bankruptcy can lower a credit score 150-200 points, but everything depends on what your score was before filing. Chances are, if you had many collection accounts by the time you filed, then your score was already low.
After 10 years, a Chapter 7 bankruptcy will fall off your score, but its impact on your score should lessen considerably as the years roll by. This means you won’t need to wait the entire 10 years before getting a loan. However, in the first few years after filing, your credit score might continue to be terrible—below 600.
Identify How Much Car You Can Afford
You already got into financial difficulties once. You don’t need a new car or truck to plunge you over a new financial cliff. For this reason, go through your expenses and identify how much you can afford to spend. Make sure that it fits comfortably in your budget so that you still have money to put into a savings or emergency account.
If money is tight, look for ways to cut expenses. Many people can get by without eating out at restaurants, buying coffee at Starbucks, or having a gym membership. Instead, you can cook or brew at home and run outside in nice weather.
When calculating how much car you can afford, remember to use a subprime interest rate. This rate is for the riskiest buyers, and you probably fall into this category. Subprime rates hover around 16.8%, much higher than the 4% interest rate borrowers with the best credit get.
Continue to Repair Your Credit
Credit repair is a process which does not happen overnight. Remember to continue to reduce balances and always pay your bills on time. If you are shopping for a car loan, there is no reason to take out other loans or try to get a new credit card at the same time. Taking on new credit can ding your score, so prioritize getting a car and leave getting a new Visa card for a later day.
Shop around for the Best Rate
It might take some work to find a lender willing to lend to you. You also should try to find the most competitive interest rate. There are a lot of lenders out there, so check credit unions, banks, and even online lenders. Ask around and don’t get discouraged if a lot of lenders tell you “No.”
Nowack & Olson is a Leading South Florida Bankruptcy Firm
If you or someone you know has questions about bankruptcy, please contact us today. One of our South Florida bankruptcy lawyers at Nowack & Olson will be happy to answer any questions that you have. Please call, toll free, 888-813-4737.