Auto Loans and Recent or Open Bankruptcy
You may be surprised to find out that even if you’ve recently declared bankruptcy, you can purchase a used car and finance it with a car loan as well. After all, you’ve probably heard about how a recent bankruptcy is a black mark on your credit report, right? While that may be true, there are also special niche lenders who see a bankruptcy in a different light than many lenders. Since you cannot file for bankruptcy often and once the process has started you are on a way to reduce or eliminate your debt. So some lenders view your ability to repay a car loan as very strong and less risky than that of a person with many bills, debt and collection accounts. Additionally, there are certain benefits associated with getting a bankruptcy car loan.
It is important to time your actions correctly. If you’re about to declare bankruptcy, don’t try to get a car loan just yet. Being on the verge of declaring bankruptcy means you’ve got tons of debt you can’t pay off, which in turn means you’re not going to qualify for a loan. The right way to do this is to wait until either you have filed for bankruptcy or your debts have been discharged. This is key because now you have or will soon have the clean slate you’ve been looking for. With your debts eliminated, you can then start rebuilding your credit score; getting a used car loan and making your payments on time is a great way to do this.
Your best bet to make this happen is to work with a used car dealership with a finance department that has relationships with lenders who specialize in what’s called the sub-prime lending market – loans for people with challenged credit. Since you’re trying to learn from your mistakes and rebuilt your credit, you often won’t have to make any down payment at all on the used car you want to finance. As long as you have decent, verifiable employment and income (usually at least $2,000/month), you should be able to find a lender who will work with you. All you have to do is apply, just like you would if you didn’t have a bankruptcy.
The only downside, really, is that you’ll have to pay a higher interest rate than borrowers who aren’t in a bankruptcy or challenged credit situation. You’re still considered a high-risk customer, so you have to pay more for the privilege of borrowing the money you need. How high your rate will be depends on your specific circumstances, but used car loans with an open bankruptcy are going to have interest rates of at least 12%. Keep in mind that lenders tend to prefer that you buy a more recent model with fewer miles. But that’s probably what you want anyways, right?
A quality car is definitely possible in spite your bankruptcy and often with no money down. Not only might you not have to make any down payment, you’ll be re-establishing and improving your credit with every on-time payment you make. To lean more about bankruptcy and getting a car -please read our detailed post: Bankruptcy: Making a Fresh Start with a Car Loan.
If you have any questions whatsoever about financing a used car with an open bankruptcy, please don’t hesitate to get in touch with Auto City’s finance department – we can help! We have partnered with some of the best lenders in the industry who have programs designed for customers with a recent or open bankruptcy. If you are ready to apply, fill out this short application to start rebuilding your credit!