Can You Get a Car Loan after Bankruptcy?
Although a bankruptcy stays on your credit report for years, odds are high that you can’t wait for it to fall off before buying a new set of wheels. But is it even possible to get a loan after filing for bankruptcy? And what steps do you need to take to improve the odds?
Plenty of bankruptcy auto loans are issued every year, so obtaining one is possible. Still, debtors need to make themselves an attractive borrower in the eyes of any lender.
Wait Until Your Debt is Discharged
Timing matters when it comes to applying for credit. Ideally, you should wait until your Chapter 7 has been discharged. Very few lenders will lend to someone with an open bankruptcy. Fortunately, a Chapter 7 only takes a couple months.
Things are a little different with a Chapter 13. This type of bankruptcy takes several years to complete, typically 5. You might be able to get a loan, but there is a process to follow. You will need to ask the trustee to give approval to take on additional debt, and a court will have to sign off.
Review Your Credit History
A bankruptcy filing is a black mark that stays on your report for up to 10 years. Of course, you might have other negative marks that could be pulling your credit score even more. It never hurts to get a copy of your credit report and check for errors. You can contact the credit reporting agencies to challenge anything that seems inaccurate.
Reduce the Amount You Need to Borrow
You will increase the odds of getting a loan if you borrow less money. Car and Driver recommends that you do the following:
- Offer a down payment. This shows the bank that you have positive cash flow. It also lowers the amount you need to borrow.
- Trade in your car. A trade in decreases the amount you finance and makes monthly payments more affordable.
Have a Stable Job
Your ability to repay a loan depends on having regular income coming in the door. A lender wants to see that you have a job that pays a livable wage and will allow you to make your monthly payments. If your employment history is spotty, then perhaps you should delay shopping around for a loan.
Self-employed borrowers have always found the market challenging, even with excellent credit and no bankruptcy. Pull together proof of how much you make, such as job offer contracts, income statements, etc.
Expect to hear “no” or “come back in a year” from many lenders, so be prepared. You might visit several banks as well as credit unions. Don’t neglect online lending, though only apply for a loan from a reputable lender.
Always compare interest rates and other charges. You might feel so grateful to be offered a loan that you immediately sign on the spot. Don’t. Instead, a better offer might be out there, so keep looking. Some dealers work with people with bad credit but offer very high interest rates, and you might find better terms elsewhere.
Get a Co-Signer, if Need Be
You might strike out everywhere. However, someone could cosign on the loan, which might make approval easier. Your co-signer should have a solid credit history, otherwise a lender will still ding you.
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