Having a bankruptcy on your credit reports can make it tough to get an auto loan. However, there are lenders out there that assist bankruptcy borrowers!
Why Does Bankruptcy Impact Vehicle Financing?
Bankruptcy impacts your car loan opportunities for two main reasons:
- Bankruptcy harms your credit score
- Traditional lenders can be wary of assisting borrowers that are in bankruptcy
A poor credit score is a common denial reason, since lenders use a borrower’s credit score to determine car loan eligibility. Often, traditional lenders require borrowers to have a FICO credit score of around 670 or above to qualify for vehicle financing. If bankruptcy drops your credit score to below the common good-credit threshold you may struggle to qualify for an auto loan even if you meet other criteria.
In addition to the damage a bankruptcy can do to your credit rating, traditional lenders may be wary to work with borrowers who have an active bankruptcy on their credit report. If you’re currently in bankruptcy, you may get turned away for vehicle financing because a lender worries the car loan may get included in the filing.
If you successfully completed the bankruptcy (called being discharged), you may have an easier time qualifying for a car loan. However, the damage from bankruptcy can linger for seven or 10 years, depending on how you filed. Chapter 7 bankruptcy is reported for up to 10 years from your filing date, while Chapter 13, is reported for up to seven years.
There's no doubt that bankruptcy can impact your auto loan chances. However, there are lenders able to assist bankruptcy borrowers if you know where to look!
Finding Bankruptcy Auto Lenders
Typically, traditional lenders, such as banks and credit unions, prefer borrowers with healthy credit reports; free of negative marks like collection accounts, bankruptcy, repossession, and/or multiple missed or late payments. Even so, there are lenders that are able to assist borrowers in this position.
Subprime auto lenders
Subprime lenders are third-party, and signed up with special finance dealerships. They’re equipped to work with many unique credit situations such as no credit, repossession, and situational bad credit like bankruptcy.
With a subprime lender, a poor credit score and reports aren’t enough to keep you out of the running for vehicle financing. They rely on other factors that have to do with your ability to pay for a car loan, such as:
- Current income and work history
- Down payment size
- Living stability
- Debt to income ratio
- Your credit reports as a whole
Buy here pay here dealerships
Buy here pay here dealers, or BHPH dealers, are unique in that they’re the lender and the dealer. They're sometimes known for skipping the credit check entirely, and basing your ability to repay a car loan on your income, work history, and down payment size.
If your credit history isn’t stellar, and traditional or subprime lending isn’t working out, then this is a good next choice if you need a vehicle quickly. However, the catch with these dealers is that you’re likely to need a large down payment (sometimes up to 20% of the car’s selling price), these dealers only sell used vehicles, and you may have to expect a higher-than-average interest rate on the loan.
Ready to Find a Dealership?
Finding a lender that can assist with bankruptcy auto financing isn’t easier said than done. Often, dealerships with bad credit lending options don’t advertise who their lenders are – making it harder for you to find the lending resources you need for your situation.
But fear not – Auto Credit Express wants to help you get back on your feet and on the road. Using our nationwide network of special finance dealerships, we’ll look for a dealer in your local area that’s able to assist with credit challenges such as bankruptcy.
Complete our free auto loan request form today, and we’ll get right to work.