Lenders see a bankruptcy as a big black mark on your credit report, so is there any point in applying for a car loan right after your discharge?
Bankruptcy is not something to be ashamed of and you shouldn't be afraid to apply for auto loans because of the black mark on your credit report. It's actually a common thing, and believe it or not, so are post-bankruptcy auto loans. If you have been recently discharged from your bankruptcy process and your vehicle was liquidated or surrendered, you're probably wondering how long you should wait to apply for financing.
The rule of thumb is to wait two to three years after you receive your discharge papers to make a large purchase like a vehicle or a home. This will give you time to start rebuilding your credit scores back up to good standing with secured credit cards or other small personal loans, but at Auto Credit Express, we understand that waiting multiple years is not always a viable option. If you had to get rid of your vehicle during your chapter 7 or chapter 13 bk, chances are you are in desperate need of a new one quickly, and we can help.
Steps to Take Before Submitting Your Application
Getting an auto loan after bankruptcy is not going to be a walk in the park, but it also isn't going to be overbearingly tough either. If you want the process to go a little smoother, there are some things you should do:
- Pull your credit report and know what your scores are
- Only apply with subprime dealerships
- Save money for a down payment and have a co-signer ready just in case
You can pull your credit report for free once a year from each of the
three credit bureaus, but these don't come with both your report and your score – you'll have to pay a little extra for both. If you happen to notice any inconsistencies or mistakes on your report, be sure to get them taken care of before you start applying because it will help make your scores look better for lenders.
There are dealerships throughout the United States and Canada that won't shove you out their doors as soon as you mention the fact that you have a bankruptcy on your credit report, and these are called subprime dealerships. They work with special finance lenders that can get you approved even with black marks in your history. Most conventional dealerships don't have these programs available and won't be able to help you get into a vehicle; steer clear of these guys.
Because you pose a higher risk to the dealership losing money you may be required to make a larger down payment than someone with good credit would be required to have to buy the same car. This helps show the dealer that you are making an investment in the car and you are a serious shopper and have your finances under control. You may also be asked to get a friend or family member with a more reliable credit history to co-sign the loan for you. A co-signer can help you qualify for a lower interest rate and make your loan more affordable for you.
Subprime Dealerships offering Special Finance Loans
Not all dealerships are willing to work with people who have a past bankruptcy on their credit report, not because it's impossible, but simply because they don't know how. This is why you should always work with a subprime dealership. They offer special finance auto loans to bad credit borrowers, without jacking the interest rate up to outrageous amounts. They understand that good, honest, and trustworthy people can sometimes find themselves in unfortunate situations that don't necessarily define who they are.
You should, however, be prepared for the loan terms that are associated with bankruptcy auto financing, as they differ greatly from traditional car loans. While you won't usually get astronomically high interest rates, you will receive a higher rate than the national average rate – again, this is because the dealer is taking a risk on lending you the money to buy a car. Another common thing you will see is that the loan term is often shorter when the applicant has low credit. This is due to the fact that a dealer wants to help you pay this loan off as quick as possible so they don't lose out on money, and you can rebuild your credit faster to qualify for a conventional loan.
New Cars vs. Used Cars after Bankruptcy
When most people go to look at buying a vehicle they check out the new car lots to see what's out there, but if you have a recent discharged bankruptcy on your credit report you may want to stick with a used vehicle. As time passes a bankruptcy becomes less and less potent on your credit score, and you'll be able to get approved for a bigger loan, but if you're looking at a car just a few months out of bk you won't be approved for as much.
Used cars are cheaper than new cars and although they may cost a little more to insure, the difference in the price tag is usually enough to counter-act the insurance difference. At Auto Credit Express, we have a large network of car dealerships that accept people who have been through bankruptcy, and they have a large variety of late model pre-owned cars in good running condition. You don't have to buy the old $1,000, barely running, junker sitting on side of the road by your house. You can get a nice good looking car that you'll want to be seen in, and you can be sure it will get you from point A to point B without a problem. Many of the used cars on these dealers' lots come with an extended warranty, too.
As We See It
Bankruptcy isn't an end-all to financial life, it's just a short term financial woe. Get back on the road today with an auto loan from Auto Credit Express. It doesn't matter if you have been recently discharged or if you're still going through the process, we can get you approved. If you're ready to get your credit scores back on track, apply online today for a pre-approval and see what you could be approved for. We will set up and appointment with a dealer in your area, and you could be driving home in a new-to-you car tomorrow!