Buying a Car After Bankruptcy

Understanding Bankruptcy and Car Loans

Bankruptcy lets you remove some or all of your unpaid debts. Personal bankruptcy comes in two flavors: Chapter 7, a liquidation bankruptcy, or Chapter 13, a reorganization bankruptcy. Both of these options allow you to get a handle on your finances in different ways. As a result, you can add an auto loan to your bankruptcy in a Chapter 13, but can't in a Chapter 7.

Since you can't apply for an auto loan during a Chapter 7 bankruptcy, you will have to wait until you complete your case. Whether you will qualify for an auto loan after bankruptcy depends on your situation. Typically, lenders like to see a year or two of credit report repair before they give you a big loan, but some lenders may approve you once you have a clean slate.

How Soon Can You Buy a Car After Bankruptcy?

How soon you can buy a car after bankruptcy depends on when you successfully finish your bankruptcy proceedings. This is typically around six months after your Chapter 7 bankruptcy is discharged or at the three- or five-year mark after a Chapter 13.

Timeline for Chapter 7

Chapter 7 bankruptcy lasts four to six months for a typical case. This means that if your bankruptcy goes smoothly and as expected, the earliest you should be able to finance is about five to seven months from filing.

However, a Chapter 7 bankruptcy stays on your credit report for 10 years and can leave a lasting scar. The longer it's been since your bankruptcy discharge, the more likely you will be able to finance.

Timeline for Chapter 13

Chapter 13 bankruptcy lasts either three or five years, so if you were to wait until your bankruptcy is discharged, you would not be able to finance a car for several years at the earliest.

However, in a Chapter 13 bankruptcy, you're allowed to take on additional debt if your trustee approves and it doesn't detract from you making your bankruptcy repayment obligations, since what you're doing in a Chapter 13 is repaying a percentage of your debt. Even though it's easier to get the car loan you need in a Chapter 13, the lingering effects will stay on your credit report for seven years.

If you can purchase a car in your bankruptcy, you typically won't be able to purchase a fancy vehicle or one that's too expensive. The minimum amount of a domestic vehicle that meets your needs is more likely to be approved by your trustee than a luxury or expensive imported car.

Challenges of Buying a Car After Bankruptcy

Impact of bankruptcy on your credit score:

• Bankruptcy can have a lasting impact on your credit report and score long after it's discharged.
• Chapter 7 bankruptcy stays on your credit reports for 10 years.
• Chapter 13 bankruptcies hang around for seven.

Higher interest rates for subprime borrowers:

• After bankruptcy, you'll likely need a subprime auto loan.
• Subprime loans tend to have a higher interest rate.

For example, the average interest rates for the Subprime credit tier sit between 13.34% and 19%, according to the Experian State of the Automotive Finance Market Report Q3 2025. This is much higher than the approximately average interest rates between 4.88% and 7.43% for borrowers with the best credit scores in the Super Prime category. There are five credit tiers, and the higher your score, the lower your interest rate may be. Subprime is second to last, while Super Prime has the top scores.

Limited financing options:

• You're likely to face limited financing options.
• The loan process as a borrower with bad credit, is almost reversed from that of a good credit borrower.
  • Good credit borrowers can choose a vehicle, get financing, and be on their way.
  • When you have a lower credit score, you may only be approved for a certain amount of money.
  • This means you get approval first, and then the dealer will show you the vehicles on their lot that fit into this range.

Predatory Lenders:

• It's also important to shop around when you're getting your first auto loan after bankruptcy. This is because even though you should expect higher interest rates, you shouldn't be taken advantage of. To this end, it's particularly important to compare interest rates and avoid predatory lenders who are trying to take advantage of your needs in the situation.

Ways to Increase Your Chances of Approval

When it comes to improving your chances of qualifying for an auto loan after bankruptcy, there are several steps you can take, but the biggest factor will be your improved credit score. Here are a few tips for how to improve your chances of getting a post-bankruptcy car loan.

• Improve Your Credit History: After your bankruptcy is discharged, it's important to work to rebuild your credit by taking good care of your finances. Pay all your bills on time and in full so that you don't find yourself in financial hot water again. Keep in mind it takes time to rebuild with a consistent credit history, so keep on top of your bills, and do not take on too much credit. It can take as long as a year or two to get to where you want to be when taking out a loan.
• Find a Cosigner: A cosigner can be a big help when it comes to getting an auto loan after a bankruptcy. A cosigner is someone with good credit who acts as a backup payer in case you miss a payment. This can give lenders the peace of mind they need to approve you for a loan when they're on the fence about your lower credit score.
• Opt for a Low-cost Car: It's easier to get approved if you don't take on too much debt. This means that the lower the cost of the car you're looking at, the better the chances you have of being approved for lending as a bad credit borrower. This may mean looking to finance a used car instead of something new.
• Save up for a Large Down Payment: Putting down at least 10% of a vehicle's selling price is typically a requirement when you're a borrower with low credit. However, if you can save even more after your bankruptcy and aim to put down at least 20% of your vehicle's price, you have a better chance of keeping equity in your car and not going underwater on your loan. Plus, a larger down payment can show more willingness to invest in yourself, which shows a lender you're serious about taking care of your loan. It also reduces the amount you're borrowing, making it more likely you will be approved.

Best Auto Loan Options for Bankruptcy Filers

After bankruptcy, it's important that you go to the right lender for your financial needs.

Credit unions vs. traditional banks. If you're a member in good standing at a credit union, it may be in your best interest to start here for a pre-approval. Credit unions tend to offer better rates than their big bank counterparts for lower-credit borrowers. After a bankruptcy, it may be harder to borrow from a big bank chain, or they may approve you right away for having a clean slate. If this is the case, be sure to borrow wisely so you don't need to use bankruptcy to clean up your finances in the future.

Buy Here Pay Here (BHPH) dealerships. BHPH dealers are independent used car dealers who finance the vehicles themselves. This means there's no waiting around for a credit check to determine your eligibility. Typically, this type of lender charges a higher interest rate and requires a larger down payment, but they base your loan approval on your income and ability to make a down payment. It may be easier to get approved at one of these dealers, but they also have a higher likelihood of being potential predatory lenders. This is not always the case, but be sure to do your research to make sure the interest rates and loan terms aren't working against you.

Special financing programs for bad credit. This is usually the best bet when it comes to getting a car loan after bankruptcy. This means finding a dealership for loan approval, then picking out a vehicle that fits your loan. These special finance lenders know how to handle unique credit situations and can get you into a vehicle despite your credit score having dropped after bankruptcy. Many franchised dealers and independents alike have special financing departments that are prepared to work with post-bankruptcy borrowers. You will likely need to meet several requirements, such as providing proof of your income, employment, and residence stability, and providing a valid driver's license.

FAQs

Will I need a cosigner for a post-bankruptcy car loan? A cosigner isn't typically necessary for a post-bankruptcy auto loan, but it doesn't hurt. Anytime you have a lower credit score, providing a cosigner can give a lender peace of mind and help ease their concerns about approving you.

What is the average interest rate on a car loan after Chapter 7? The average interest rate after a Chapter 7 bankruptcy will depend on your personal situation and how far your credit has fallen. In the latest Experian report, the average loan amount for a used car by borrowers with the worst credit was around 22%, so it's important to know where your credit lies and what the current average interest rates are for people in your credit score range.

What kind of interest rates can I expect after bankruptcy? You can expect higher-than-average interest rates after being discharged from bankruptcy. Typically, your credit score will drop by several hundred points, and could put you into a lower credit score tier. When this happens, the interest rate you qualify for will go up. The lower your score, the higher your interest rate. The current average at the time of this writing is between 4% and 22%.

Will buying a car help rebuild my credit after bankruptcy? Buying a car can definitely help you raise your credit after a bankruptcy. Managing a loan with timely payments shows you're serious about rebuilding your credit, it adds a new line of credit to your credit mix, and satisfies new credit requirements, all of which combine to help build your credit. However, your credit score won't grow without proper loan management, so if you can't handle the responsibility of more debt right away, it's recommended you wait to take on a car loan.