How To Refinance Your Car Loan
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Refinancing a car loan can help you save money by lowering your interest rate. The process involves replacing your current car loan with a new one, typically with a different lender. Your car will act as collateral on your new loan, just as it did on the original loan. Heres how the auto loan refinance process works and what to think about before you apply.
How Does Bankruptcy Affect Your Credit
Even if youve waited the appropriate seasoning period to apply for a home loan, you still need to repair your credit in order to qualify. Whether youre applying for an FHA loan, a VA loan, or a conventional loan, youll most likely need your score to be somewhere between a 580 and 640.
On the plus side, a Chapter 7 filing automatically wipes out your debt, so your amounts owed category can rebound pretty quickly. This also helps your debt to income ratio when it comes time to apply for a loan.
But a bankruptcy can cause your score to drop as much as 240 points, and it takes time to bring it back up. How long? A Chapter 7 filing remains on your credit report for ten years while a Chapter 13 stays there for seven years.
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.
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Can I Get A Car Loan After Bankruptcy
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Taking out a car loan after Chapter 7 bankruptcy is possible with time, and following a few key steps may even speed up the process. This article will answer common questions about buying a car before, during and after filing for bankruptcy, whether you can keep a car when you file and how to protect it from being repossessed.
Begin Repairing Your Credit As Soon As Possible
There are a few things you can do right away to begin repairing your credit score. The first is to pay all of your bills on time each month so that you can rebuild your payment history.
You should also keep your oldest credit accounts active, even if you dont use them. The length of your credit history accounts for 15% of your score, so this is a simple way to refrain from losing any more points.
Buying a house after bankruptcy is by no means unattainable. It just takes patience and diligence to rebuild your credit score while waiting out the seasoning period.
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Getting An Auto Loan After A Bankruptcy
There are two types of personal bankruptcies in the US: Chapter 7 and Chapter 13, and both will drop a consumer’s credit score.
A Chapter 7 bankruptcy is a liquidation proceeding that takes a few months to complete, and it remains on credit reports for up to 10 years. A Chapter 13 bankruptcy involves setting up a three- or five-year payment plan to repay debts and stays on credit reports for seven years.
While a bankruptcy takes a toll on credit, post-bankruptcy auto loans are commonplace in the auto finance market and are similar to bad credit auto loans in terms of requirements and interest rates. Consumers are technically eligible for these programs upon discharge, and there are even programs for consumers in open Chapter 13 bankruptcies.
However, if a consumer has an existing auto loan heading into the bankruptcy, how its handled can have an effect on their ability to qualify. People who reaffirm on their car loan and have an otherwise solid car payment history and those who include their car loan in the bankruptcy may not have to wait. But those with a repossession outside a bankruptcy typically have to wait at least a year in order to qualify.
Outside of this special circumstance, theres no set period of time car buyers need to wait after a bankruptcy to get a car loan. Nevertheless, consumers can benefit from giving themselves more time.
Chapter 7 Followed By A Chapter 13 Bankruptcy: 4 Years
Because a Chapter 13 typically involves paying most if not all what you owe creditors, you can file a Chapter 13 after a Chapter 7 sooner than trying to do consecutive Chapter 7 cases. If you receive a Chapter 7 discharge, you are eligible to attempt a Chapter 13 bankruptcy filing if at least four years has passed from the previous Chapter 7 case.
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Write A Letter Of Explanation
Your lender takes a careful look at your finances when you apply for a mortgage. Every time a lender issues a mortgage, they take a risk. Lenders need to know that youll make your payments on time every month. Of course, a bankruptcy on your record is a major red flag.
You can increase your chances of getting a mortgage after bankruptcy by writing a letter of explanation. A letter of explanation tells your lender more details about your bankruptcy and why you needed to declare bankruptcy.
You might want to include details on the circumstances that led to your filing and how your financial life has changed since then. Also, explain the steps youve taken to prevent a future bankruptcy as well like paying off debt and building an emergency fund.
A letter of explanation isnt a requirement to get a mortgage after bankruptcy, but it can help your lender see the bigger picture instead of just a set of numbers. Include your letter of explanation with your mortgage application when you request a preapproval.
Where To Find Auto Loansafter Bankruptcy
A little research will unveil that there are a few lenders out there who will finance individuals who have had to go through bankruptcy. We here at New Roads Auto Loans are also among the lenders on that list. We are an online auto lender that finances individuals who have filed bankruptcy. The bankruptcy can be an open or a discharged Chapter 7 bankruptcy and can be a Chapter 13 bankruptcy with trustee approval.
We have been financing bankruptcy customers since 1991. We know that getting a car loan after bankruptcy can be a complicated, seemingly impossible process. New Roads Auto Loans can help bankruptcy filers regain peace of mind with guaranteed bankruptcy auto loans. We work with our customers to find a payment that they can afford and that fits into their realistic budgets. We have even been able to give zero down payment auto loans to many customers who have bankruptcies on their credit history. Our aim is to get our customers in their choice vehicles while allowing them to keep as much money in their pockets as possible. With New Roads Auto Loans, we make the impossible, possible!
- Consumer Portfolio Services, Inc. DBANewRoadsAutoLoans
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You Can Wait For A Discharge But Why
If your car dies while you have an open bankruptcy, the answer to the question is clear. You cant wait for your bankruptcy discharge because you need a car now, unless you can manage to get by on public transportation or asking friends and family for rides everywhere you need to go. Thats not going to work for most people, so waiting for a discharge wont even be an option in those cases.
Another basic assumption here is that youll need to finance your purchase. Most people with an open bankruptcy obviously dont have thousands of dollars lying around to buy a car. This is what makes buying a car during a bankruptcy tricky. Many lenders wont give you the time of day with an open bankruptcy, which is why you might need help finding a bankruptcy car loan.
But what if you could wait to buy your next car. Should you? Is there any advantage to waiting for your discharge? Now the answer becomes maybe. The only advantage to waiting is if you can realistically save up money for a bigger down payment as you wait for your discharge to happen. But thats the only reason. Otherwise, there is literally no reason to wait.
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Average Interest Rates For Car Loan After Chapter 13
Chapter 13 bankruptcy has the same effect on your credit score as Chapter 7, so the interest rates will be similar, based on credit score and credit history. However, creditors may be more willing to extend a loan to a Chapter 13 filer. A Chapter 13 case shows a good faith effort to repay debts during financial hardship. It also offers a history of following a budget and making regular payments.
As far as credit score is concerned, the only difference will be the period of time that the scores are affected. Chapter 13 cases take three to five years to complete, while Chapter 7 cases are typically done in a matter of three to four months.
Chapter 13 or Chapter 7 bankruptcy filing doesnt prevent you from securing a car loan, but it affects your credit score and credit history for several years. There are steps you can take to rebuild your credit history after a Chapter 7 discharge or during a Chapter 13 repayment period:
Qualifying for a car loan after bankruptcy presents challenges but is possible. Subprime auto loans through Tom Kadlec Kia are available for those who have gone through bankruptcy. New and used car loans are available to fit your budget and needs while rebuilding credit. Learn more about auto loans for all credit types from the;Tom Kadlec Kia finance department.
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Can You Buy A House Even After A Foreclosure
Purchasing a home after a foreclosure is a bit trickier than a bankruptcy because youve shown poor ability to repay on the exact product youre hoping to purchase again.
But nothing is impossible; youll just have to wait a little bit longer than you would with a straightforward bankruptcy. Heres how it works.
If youre seeking a conventional loan, you can expect a seven-year wait period from the actual date the foreclosure was filed . FHA loans only require a three-year wait period.
However, if you can prove that the foreclosure was caused by a situation out of your control, you might be able to shorten the seasoning period for both types of loan.
Examples of this include a substantial period of unemployment, a major illness, or a divorce. To shorten a conventional loan wait time from ten years to three years. Youll also need at least a 10% down payment or 90% loan to value ratio.
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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Keeping A Car You Own Free And Clear
If you own your car free and clear, the next question you have to answer is âhow much is my car worth?â The answer the carâs fair market value determines whether you risk losing the car in a bankruptcy.
How much is your car worth?
If you sold your car today, as is, whatâs the most someone would pay you for it? Thatâs the value that matters. It doesnât matter how much the car cost when you bought it⦠thatâs old news. If youâve had your car for a few years, itâs no longer in the same condition as when you bought it. How much it cost then doesnât tell you how much itâs worth today.
It also doesnât matter how much you ended up paying for it by the time the car loan was finally paid off. That amount includes the interest you paid and depending on the interest rate on your auto loan, that can be quite a bit more than the car was ever worth.
Find out how much you can protect with an exemption
Filing a bankruptcy case is meant to give you a fresh start. Bankruptcy exemptions exist to make sure everyone filing a bankruptcy case can keep their most basic possessions. Depending on the state youâre filing in, and how long youâve been there, you may be able to choose between the federal bankruptcy exemptions and the exemptions granted by your state law.
Getting additional protection by claiming a wildcard exemption
What if my carâs fair market value is greater than the exemption amount?
Chapter 13 bankruptcy can help, too!
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Ask To Become An Authorized User
Getting someone to co-sign on a loan may be a tall order, but building your credit as an authorized user on someone elses credit card is often more feasible. Being an authorized user involves having a card in your name thats attached to another borrowers account, not your own. Youll be able to use the card for purchases without having to qualify for the account on your own meritsbut you wont be able to modify the account.
Credit card payments will show up on your credit report, so if these payments are made on time and the credit utilization rate stays low, your score will improve over time. Just make sure the credit card company reports authorized user payments to the three main credit bureaus so you have the greatest chance of increasing your score. While this isnt as impactful as other methods of increasing a credit score, it can still be helpful as part of a larger strategy.
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Can You Keep Your Car After Filing Bankruptcy
There are several factors that go into whether you’ll be able to keep your vehicle through the bankruptcy process. Since your vehicle is considered an asset, and potentially a valuable one, it’s something creditors may pursue when looking to collect debt. Your vehicle may, however, be counted under an exemption that protects it from repossession. In general, the following is considered to determine if you’ll be able to keep your car:
- The type of bankruptcy you’re filing
- Whether you own, lease or are still financing the vehicle
- The value of the vehicle
- What exemptions apply where you live
Read on to learn more about what you can expect to happen to your vehicle when you file bankruptcy.
How Long Do I Need To Wait Before Buying
There is no clear and present answer to this question. Like we said in the last section, you should ideally wait at least a month, but there is no set timeframe before you can start buying a new vehicle. As long as your credit is repaired after the bankruptcy and your final discharge has come and gone, you can technically purchase a car whenever you want.
Hopefully answering these questions has helped answer the questions you were having. If you have any more, dont hesitate to give us a call here at Broadway Auto Credit. This is one of our specialties, so wed be happy to help no matter your situation.
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