Getting Approved For A Car Loan After Bankruptcy Is Difficult But Its Not Impossible With A Little Extra Work You May Be Able To Finance A New Set Of Wheels Sooner Than You Think
If youve filed for bankruptcy or are considering this option, you may find yourself having trouble getting approved for credit, including a car loan.
Lets take a look at how filing for a Chapter 7 or Chapter 13 bankruptcy could affect your ability to get a car loan, and steps you can take to help increase your chances of loan approval.
Buying A Car After Bankruptcy: Pay A High Interest Rate
If you cant wait to rebuild your credit before buying a new or used car, you can still obtain a car loan after bankruptcy. However, you should expect to pay a higher interest rate, likely double, or even triple, what a consumer with good credit would pay for a car loan.
Some used car dealers are known as Buy Here, Pay Here dealers, which specialize in providing after-bankruptcy car loans. If you choose to buy a car through such a dealer, be sure that the loan youre given will be reported to the major credit agencies. Otherwise, choosing this path will not help you to rebuild your credit rating.
Thats why, when buying a car after bankruptcy, it is advisable to obtain a loan from an established financial institution.
Can You File Bankruptcy Yourself In Canada
It is not possible to file for bankruptcy yourself in Canada. Licensed Insolvency Trustees are the only professionals in Canada that can administer bankruptcies and consumer proposals. They hold a license from the Canadian Superintendent of Bankruptcy, and you must work with a LIT on your filing.
Alongside helping you build your bankruptcy filing, a LIT will provide information on other forms of debt relief, such as a consumer proposal. When picking a Trustee, it is best to select someone local and someone you are comfortable working with. Never be afraid to ask your LIT questions, and always confirm they have a license from the Superintendent of Bankruptcy.
If you need a Licensed Insolvency Trustee, pick someone with whom you are comfortable working. See here to .
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Where To Look For A Good Car Loan After Bankruptcy
Immediately after a bankruptcy, it wont be easy to get a car loan. Your best bets:
- The bank or credit union where youre already a customer. Since your accounts are with them, they may treat you differently from someone walking in off the street.
- Bad credit auto lenders. Some car lending companies specialize in working with customers with bad credit. Again, you wont get great rates, but this can still work for you if it fits inside your budget. Check whether having a cosigner preferably one with excellent credit would lead to a lower interest rate.
- Swap leasing. This involves taking over someone elses lease and payments from them. You pay whats left on the car and they escape a loan that isnt working for them. Of course, read the terms closely and check out the vehicle before the exchange to make sure its worth buying.
Check Your Credit Scores
If youve recently filed bankruptcy, chances are your credit scores are on the low side. But this doesnt mean your car loan application wont be approved. And its good to know where you stand before applying so you wont be caught off-guard when the prospective lender pulls your credit history and score.
Youll have to pay a nominal fee to access your FICO score on MyFICO.com. But you can also view your credit score by signing up for one of the . You may also be able to view your credit score on your banks online dashboard or credit card statement.
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The Two Types Of Bankruptcy
There are two types of bankruptcy, and one certainly makes it easier to get a car loan with. However, thats not to say that lenders wont work with both!
Chapter 7 this type of bankruptcy discharges all debt held by the person applying. This type of bankruptcy makes it easier to obtain a car loan because lenders will see that all other debt has been wiped out, thus freeing up the person to have an easier time making payments on the new loan.
Chapter 13 this type consolidates all debt and puts the person on a payment plan. While this is still a beneficial type of bankruptcy, lenders are a bit more hesitant to lend. This is because a person has other payments they are making, thus possibly making it harder to pay the car loan.
The Best Providers Of Bankruptcy Auto Loans
Our top choices for bankruptcy auto loan providers are not actually lenders. Instead, theyre lending networks that shop your single loan application to several partner lenders and could return with multiple loan offers for you to choose from.
If youre struggling with a bankruptcy on your credit report, a lender network can help increase your chances of finding an auto loan by submitting your information to multiple direct lenders on your behalf.
- Network of dealer partners has closed $1 billion in bad credit auto loans
- Specializes in bad credit, no credit, bankruptcy and repossession
- In business since 1999
Even before you submit your application to Auto Credit Express, you can complete a 30-second prequalification form that will give you a better idea of your approval odds. If you decide to continue, youll complete the three-minute application process and receive a decision almost immediately.
And since Auto Credit Express queries a national network of lenders, you could receive more than one auto loan offer. But to qualify, you must provide a verifiable income source of at least $1,500 a month.
- Specializes in auto loans for bankruptcy, bad credit, first-time buyer, and subprime
- Affordable payments and no application fees
- Same-day approval available
Car.Loan.com doesnt set a minimum credit score for approval. In fact, its partner lenders specialize in working with applicants who have bad credit, no credit, and recent bankruptcies.
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Chapter 13 Bankruptcy: Possible During Or After
If youre in Chapter 13 bankruptcy, getting an auto loan in the middle of your filing is much easier than Chapter 7. Chapter 13 bankruptcy is much longer, lasting anywhere from three or five years since the consumer in Chapter 13 works to repay their debts as much as possible.
Its still easier to get approved for a car loan after the bankruptcy is discharged, though, because you no longer need court permission to incur new debt.
If you can wait until your bankruptcy is discharged, its recommended that you do so. Once your bankruptcy is over and you get your discharge papers, you can head to a dealership or auto lender right away. Odds are, much of your unsecured debt was discharged in the end, freeing up some income to pay for a vehicle and increasing your approval chances.
However, if you cant wait until the discharge date, there are the five basic steps to getting an auto loan during Chapter 13 bankruptcy:
Some Highly Interesting Facts About Car Loan After Bankruptcy Revealed
- Lenders have now realized that the demand for post bankruptcy auto loans has been steadily increasing over the past couple of years. As a result, they are now competition with each other to provide some of the best deals in the market.
- A number of car dealerships in downtown Toronto also provide after bankruptcy auto loans as they have tie-ups with local subprime car finance lenders. But it could be better if you stay away from such financing mechanisms as they can be highly expensive. You can end up spending more money on interests.
- Some lenders are engaged in predatory lending practices, you need to be beware of these loan dealers. Their sole objective is to take undue advantage of borrowers, who have developed bad credit and their financial situations, by charging them exceedingly high interest rates and providing highly inflexible terms for financing cars.
- Auto loans post bankruptcy enable building credit within a stipulated frame of time and so there is a need to capitalize on the opportunity to get your financial situation back in order. Hence, you must make sure that you maintain regularity in paying monthly car instalments on time every month.
- To save time while getting your post bankruptcy car financing loan application approved, you can give explanation on the situations that lead you to file for chapter 7 or chapter 13 bankruptcy by attaching an extra page along with your request.
The Truth about Getting a Car Loan after Bankruptcy Online
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Buy Here Pay Here Car Loan
For both types of bankruptcies and especially for Chapter 13, buy here pay here car loans from car dealers is probably the best bet. With this type of car loan, the auto dealer underwrites and extends the credit and is not limited to the underwriting criteria of an independent, third-party auto lender. This type of payment plan is also called in-house financing. This way, the car loan is between the dealer and the customer, without the interference of a third-party. This is especially good for those in bankruptcy. Typically, a third-party would be the most likely to deny the loan request.
Be Careful Of Falling Back Into Debt
The final step is very important. You need to take measures to protect yourself from falling back into a vicious cycle of debt. When youre looking for a vehicle, especially for work reasons, it can be a very stressful process with a feeling of urgency. Unfortunately, there are predatory lenders who prey on vulnerable lenders. To mitigate this risk, be sure to do thorough research on the options which are available.
A good approach is to wait to finance until you have rebuilt your credit. Use the mechanisms available to you, such as secured cards, and pay down your debt before taking on any more. Finally, it is important to budget for the real cost of the car . Consider the expenses including maintenance, insurance, registration, and fuel. Have a realistic budget so that you know what to expect in terms of the actual cost.
Construct a detailed budget that considers your income and expenses. Factor in the projected expense of the vehicle and determine whether getting a loan is the right way to go. You can make adjustments to your situation by improving your credit . Alternatively, you can pursue a lower loan amount by adjusting the price range of the car youre seeking.
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What Happens If You File Bankruptcy With A Car Loan
An auto loan is a type of secured debt. That means the item you finance in this case, a car is used as collateral in the loan. If you fail to pay back your loan, the lender has full authority to repossess the vehicle.
Although bankruptcy will remove your obligation to repay your debts, including loans and credit cards, it does not remove the rights of the dealer or lender to seize any secured property included in your discharged loans. That means they can take your car if you dont repay the loan.
But there are a few ways you can keep your vehicle during bankruptcy proceedings. If your payments are current when you initiate the bankruptcy, you can work with the dealer to continue payments and not include the loan in your bankruptcy filing. That will keep the loan current and allow you to retain your vehicle.
Another option is to forego Chapter 7 bankruptcy and instead file for Chapter 13 bankruptcy. This modified plan doesnt discharge your debts, but it spreads them out over a period of three to five years and gives you more time to pay them off, with lowered interest fees.
Since youll continue to pay down your loan, you can keep the car and not take as massive a hit to your credit rating.
Bankruptcy Auto Loan Connections
Want to skip the legwork of locating a dealership that can assist you with bankruptcy vehicle financing? Then start right now with Auto Credit Express. Weve created a coast-to-coast network of special finance dealerships equipped to handle many unique credit situations. Complete our free car loan request form to get started.
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Predatory Lending And Scam Risks
As you search for loans after bankruptcy, beware of predatory lenders. They tend to target people fresh out of bankruptcy since they might be in a more vulnerable position.
Personal loan scams present another risk to be aware of. Some signs that you might be receiving scammy personal loan offers include:
- Promises of guaranteed approval
- Upfront fees or payments required
- Urgency created with limited-time offers
Average Interest Rates For Car Loan After Chapter 7
Filing either Chapter 7 or 13 have roughly the same effect on credit scores. However, chapter 7 filers cant file again for another eight years, which shows a lower risk of debt being charged off. Each of the two types of bankruptcy has its advantages and disadvantages.
The higher the borrowers credit score before a bankruptcy filing, the farther it will drop after the filing. Borrowers with low credit scores before bankruptcy may not see their scores fall as far. The reduction in credit score is also based on the number of accounts included in a bankruptcy filing.
Interest rates on car loans are tied to credit scores from the three major credit bureaus: TransUnion, Experian, and Equifax. Credit scores range from 300 to 850, with 300-500 considered deep subprime and 501-600 considered subprime.
Used cars carry a higher interest rate since they have less value and provide less collateral for the loan. Rates for deep subprime borrowers can be around 19%, while subprime borrowers rates can be about 16%. New cars have more collateral for a secured loan and have lower rates for those who qualify. Rates for deep subprime are around 14%, and for those with subprime credit scores, the rate is about 11%.
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How To Prepare Yourself For A Post
Explore all of your financing options. Check with different financial institutions, including credit unions, to see what type of auto financing is available. Ask whether having a cosigner would help you get a better interest rate. Learn about subprime lenders.
Know what you can afford before you shop. Make sure your new car payment will not make meeting your other living expenses harder. You donât want to end up in a stressful financial situation all over again.
Do some window shopping. It can be hard to get excited about buying a used vehicle. To combat this and feel better about buying something other than a brand new car, do some research. Find out which cars hold their value the longest, have the features youâre looking for while fitting into your budget, and â¦ wellâ¦ excite you the most.
Learn the numbers. By the time youâre at the car dealership, you should know not only what kind of car you want but more importantly, what kind of down payment and monthly payment you can afford.
Avoid âbuy here, pay hereâ offers. âBuy here, pay hereâ dealerships often charge extremely high interest rates, up to 29%, and many have a reputation for not treating their customers well.
Rebuild your credit for as long as possible. This will allow you to make the most of your fresh start and apply for a car when your credit is stronger. The longer you can wait, the better.
Financing A Car After A Chapter 13 Bankruptcy
Subprime lenders have a set of requirements that you have to meet before they approve you for a loan. This includes providing proof of income and residency, as well as a list of personal references, proof of a working phone , and a valid drivers license. Having these things shows lenders that you have the ability and stability necessary for a car loan payment.
Before you get auto financing after a Chapter 13 bankruptcy, you need to make sure that your discharge shows up on your credit reports. If it doesnt or hasnt yet and you cant wait, youll need to bring a copy of your bankruptcy discharge to the dealership with you, along with the other documents.
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How Soon After Bankruptcycan I Get A Car Loan
Overall, before beginning to apply for car loans, you’ll want to make sure your bankruptcy has been filed. After a Chapter 7 bankruptcy, it is possible to apply for a car loan immediately after you file. New Roads Auto loans uses the motto “File Today, Drive Tomorrow” A bankruptcy case will generally last about three to five months from the date the claim is first filed to the day the debt is discharged.
Even after being discharged, there is still the issue of high-interest rates. In fact, there is no specific time limit for when it is possible to get a car loan after bankruptcy. Some lenders just want the claim to be completed and discharged. Therefore, however long that takes is how soon a car loan could be obtained. Since a Chapter 13 bankruptcy takes more time to complete, many lenders are willing to finance an individual who has permission from the court to obtain a car loan.