Telling The Lender You Want To Renegotiate Your Car Loan
When you file for Chapter 7 bankruptcy, youre required to tell your car lender what you plan to do with your financed car on the Statement of Intention for Individuals Filing Under Chapter 7 bankruptcy form. Your creditor will receive notification of your choice after you file the form with the court.
On the statement of intention, youll indicate whether you want to keep the car or let it go back to the bank. If you want to keep it, youll select one of the following three options:
- surrender
- reaffirm , or
- redeem .
When you check the reaffirm box, your lender will send you a reaffirmation agreement with the original terms of your car loan.
If youre paying for your car with monthly payments, bankruptcy will cancel that contractbut giving back the car may not be what you want, especially if the car is essential for work, school, or family commitments.
Getting A Bad Credit Car Loan After Bankruptcy
If you have completed a Chapter 13 or Chapter 7 bankruptcy and need to buy a car, CarsDirect can help. Even if your credit is bad, we can match you with a dealership in your area that can work with unique credit situations.
Our process is fast, free, and comes with no obligations. Go ahead and fill out our quick and simple 1-Step Auto Loan Request to get started today.
How To Get Car Loans After Bankruptcy
This article was co-authored by Michael R. Lewis. Michael R. Lewis is a retired corporate executive, entrepreneur, and investment advisor in Texas. He has over 40 years of experience in business and finance, including as a Vice President for Blue Cross Blue Shield of Texas. He has a BBA in Industrial Management from the University of Texas at Austin. This article has been viewed 217,180 times.
Getting a car loan can be stressful for anybody, but the process is fairly simple, even if you have a history of bankruptcy. Assuming you definitely need a car, your goal should be to find the most reliable car at the most affordable rate. A bankruptcy filing does not mean you have to expose yourself to predatory lending practices. If you’re in the market for a new car, and financing it is the route you wish to take to re-establish your credit history, know that you’re not alone and that there are several options available to you.XResearch source
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Gather And Organize Your Documentation
Refinancing is similar to applying for a first mortgage. Youll need to supply the standard documents plus certain bankruptcy forms.
Here are some of the documents to have on hand before you apply:
- Bankruptcy discharge papers
- Recent pay stubs
- Federal tax returns for the past two years
Your loan officer will likely request additional forms to verify your income and credit.
Getting A Car Loan After Bankruptcy Is Possible Although You’ll Pay A Bundle In Interest And Fees
By Rebecca McDowell, Contributing Author
Often people think bankruptcy will hurt their credit so much that they will never again be able to get a car loan or other credit. Fortunately, that’s not the case. Many people emerge from bankruptcy and are able to finance a car. Be aware, however, that you’ll likely pay high interest and fees.
Read on to learn how to find a legitimate car loan lender, and to find out about the process for getting a loan during or after Chapter 7 and Chapter 13 bankruptcy.
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What Is Bankruptcy And How Does It Affect My Credit Score
When individuals, couples, or businesses find themselves in a position where they cannot meet their financial obligations, bankruptcy is a legal option that helps them manage their debt through federal court. Its an alternative to debt consolidation if you cannot afford monthly payments. Depending on your income, you might have a payment plan, or your debt might be discharged.
There are several types of bankruptcy, referred to as chapters:
- Chapter 7: Liquidation bankruptcy requires the sale of your nonexempt property so funds can go to your creditors.
- Chapter 9: This is for municipalities, like airports, hospitals, school districts, and utility districts.
- Chapter 11: The most common chapter for businesses, this helps reorganize your corporate and small business debt.
- Chapter 12: This is used exclusively for family farmers and fishermen.
- Chapter 13: This allows individuals and couples to make payments on their debt for up to five years.
- Chapter 15: Very uncommon, this chapter is for foreign debtors that are typically filing for bankruptcy in other countries.
The two types of bankruptcies that impact individuals and married couples are chapter 7 and chapter 13 bankruptcies. Occasionally, you might experience chapter 11 bankruptcy, though thats generally only for business owners that are liquidating.
Getting A Car During Or After Chapter 13
Chapter 13 bankruptcy is different because, unlike Chapter 7, its a 3- to 5-year process designed to let debtors get caught on their loans. While youre in Chapter 13, you must get permission from the bankruptcy court to buy a car. Its a good idea to check with your bankruptcy attorney before doing so.
Once your bankruptcy is discharged, you can buy a car without anyones permission. The same suggestion applies: The longer you put off such a purchase, the likelier it will be that your interest rate will be less punitive.
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Financing Your Car With An Auto Loan After Bankruptcy
When trying to finance your car with an auto loan after bankruptcy, you may face a tougher time finding a lender some will be reluctant to work with you. Also, once you find a lender willing to let you borrow money, you probably wont qualify for the best auto loan rate. For example, according to a 2020 automotive industry report by Experian, borrowers who have credit scores in the 501-600 range pay an average APR of 10.36 percent for new cars and 16.4 percent for used ones. In addition, some lenders will require that you make a higher down payment.
Qualifying For A Mortgage After Bankruptcy Mortgageloancom
You can apply after a Chapter 13 filing as long as youve made 12 months of consecutive on-time bankruptcy payments. You will need approval from the;
How Long After Bankruptcy Can I Buy a House? · FHA Loans 2 year required seasoning period · VA Loan 2 year required seasoning period · USDA/RD Loan 3 year;
Whether you filed a Chapter 7 or a Chapter 13 bankruptcy, the rule of thumb is that you need to wait for two years to get an FHA loan. This type of loan is;
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The Right Time To Refinance A Car Loan
The main reason to refinance is to save money on your auto loan. If you just want to pay your car loan off faster, all you have to do is increase the payment each month theres no need to refinance.
However, not everyone can do this if their monthly payment is currently pushing the limits of their budget, and thats where refinancing comes in handy.
There are two different times when refinancing should be considered:
What Credit Score Do You Need To Buy A House
Aug 20, 2021 The credit score you need to buy a home depends on the lender and the loan, and youll need the best possible score for the best interest;Loan Type: Minimum FICO Credit ScoreFHA: 580 with a 3.5% down payment; 500 with Conventional: 620 to 640VA: No set minimum; most lenders require at l
Apr 24, 2021 Borrower credit scores play a significant role in the refinance process. What Credit Score Do You Need To Refinance?
By getting your scores, you can be sure that you know the kind of loan offers you should be receiving before lenders present you with numbers. FICO® scores are;
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When You Shouldnt Refinance Your Car Loan
If youre in the middle of shopping for a personal loan, mortgage or other financing option, now is not the right time to refinance your auto loan. Applying for a loan would hurt your credit score and possibly cause you to receive a higher interest rate on any loan offers.
If your current auto loan has a prepayment penalty, then refinancing could incur that penalty. Depending on the penalty and your current interest rate, it may not be worth refinancing. If youre not sure whether your loan has a prepayment penalty, look up the loan contract or call the lender and ask them. Some prepayment penalties only apply if you recently took out the loan, so its best to verify over the phone or through documentation.
How To Refinance Your Car Loan
Through April 20, 2022, Experian, TransUnion and Equifax will offer all U.S. consumers free weekly credit reports through AnnualCreditReport.com to help you protect your financial health during the sudden and unprecedented hardship caused by COVID-19.
In this article:
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. Here’s how the auto loan refinance process works and what to think about before you apply.
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Chapter 7 Vs Chapter 13
Here are the facts about refinancing your home mortgage after bankruptcy:
If you filed for Chapter 7 bankruptcy, the courts wiped out almost all of your unsecured consumer debts, so when you qualify for a mortgage refinancing loan depends on the type of loan you want. The Federal Housing Administration requires you to wait at least two years after bankruptcy discharge before applying for an FHA-backed refinance after chapter 7 loan. Private refinance loans are different, though, and may have easier or more stringent qualifying standards.
Qualifying to refinance after Chapter 13 bankruptcy requires a waiting period. Since youre required to pay off your debts according to a payment plan in this type of bankruptcy, FHA says that you need to show sufficient payment history before applying for new loans. Fortunately, the waiting period may be as little as one year, depending on the facts and jurisdiction of the bankruptcy. You also need the bankruptcy courts permission to apply.
Get Your Credit Reports And Credit Scores
Yeah, checking your credit probably feels a little like pulling a bandage off a big gaping wound. Its not going to be pretty. But the lender is going to check your credit, so you might as well know what they are going to see. Besides, its always a good idea to review your reports after bankruptcy because mistakes are not uncommon.
You can get your free annual credit reports from AnnualCreditReport.com and you can get a free credit report summary from Credit.com that explains how lenders are likely to view your information. Although the lender will pull a customized credit score that likely differs from the one you see, it will still give you an idea of where you stand in general.
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Pay particular attention to what the report says about previous auto loans, since those are often more heavily weighted in the credit scoring models used by auto lenders. Positive on-time car loan payments reported during and after bankruptcy can be helpful.
Connecticut bankruptcy attorney Eugene Melchionne suggests asking yourself the following questions: Was there a previous car loan involved in the bankruptcy? Was that car loan reaffirmed? ; If the loan is reaffirmed, then the tradeline should be showing up on the credit report.
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Ways To Refinance Your Mortgage With Low Credit Score
Jan 15, 2020 Generally, if youre seeking a conventional refinance, youre more likely to be approved with a credit score of 620 or higher. However, you may;
May 12, 2021 You need a decent credit score The minimum credit score to refinance typically ranges from 580 to 680, depending on your lender and loan;
Streamline refinancing for VA and FHA loans often requires far fewer documents. Credit score requirements to refinance. The minimum credit score you need to;
How Reaffirmation Agreements Work In Chapter 7 Bankruptcy
Filing for bankruptcy invalidates the loan between you and the bankincluding all of its terms and conditions. In some jurisdictions, the bank will allow you to keep the car as long as youre current on the payments and remain current.
However, without a contract, both you and the bank lose certain protections.
One of these terms protects the bank if the car gets destroyed in a personal injury accident, and the insurance payout is insufficient to cover the loan balance. If this were to happen, the bank could sue you for the difference between the payout and the loan . But if you keep the car and continue to make payments without a loan agreement containing the right-to-sue clause, the bank wont be able to sue for a deficiency.
Reaffirming a loan protects not only the lender; it can be good for you, too.
- Protection for the bank. The lender can sue you for a deficiency judgment if you fail to pay the entire loan balance for any reason.
- Protection for you. The lender cannot take back the property unless you fail to make your payment .
The lender is in the business of collecting money, not cars, and will often be willing to forego the ability to get a deficiency judgment in exchange for the hope that youll send in monthly payments. Still, youll want to consider the following factors before proceeding without a reaffirmation agreement:
Its important to understand that the rules in your state might be more complicated than the general concepts discussed here.
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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%.
How To Renegotiate Car Loan Terms While Negotiating A Reaffirmation Agreement
You can start negotiating when you receive the reaffirmation agreement, or, if youd like to speed up the process, you can contact the lender as soon as you file your bankruptcy petition.
Dont worry that the bank might be put off when you ask for better loan termspeople regularly try to negotiate for lower rates. However, you should be aware that entering into a reaffirmation agreement is voluntary for both the lender and the borrower and that most reaffirmation agreements include the same conditions as the original loan.
Even so, a lender will agree to new terms, on occasionespecially if taking back the car will cause the bank to lose moneyso theres no harm in asking the creditor to do any of the following:
- forgive missed payments
- add or delete a co-signer, or
- change any other term.
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How Long After Filing Bankruptcy Can You Buy A Car
While the effects of bankruptcy hang around for 7 to 10 years on your credit report, thats not how long you must wait to borrow money. The impact of the penalty decreases each year, and its even possible to get a car loan within six months of your discharge.
But that might not be the wisest course of action. The longer you can go without buying a vehicle, the more time you have to improve your credit score, which increases the likelihood of getting a loan at an affordable interest rate. One option: Help yourself out by getting a free copy of your credit report and checking it closely for errors so they can be removed.
If you need a car now, do you have enough cash to buy an inexpensive one to get you through the first 6 to 12 months? It may not be something youll be proud to be seen in, but it will give you time to improve your credit score and save for a down payment, both of which will help you get better interest rates on your next car.
