Lenders see a bankruptcy as a black mark on your credit reports, so is there any point in applying for a car loan right after your discharge?
Waiting to Apply for a Car Loan After Bankruptcy
Filing for bankruptcy isn't something to be ashamed of, and you shouldn't be afraid to apply for auto loans because of it. It's actually a common thing, and believe it or not, so are post-bankruptcy auto loans.
If your bankruptcy has recently been discharged 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 a year or two after you receive your discharge papers to make a large purchase like a vehicle or a home. This gives you time to start rebuilding your credit score back up to good standing with secured credit cards or other small personal loans.
At Auto Credit Express, we understand that waiting multiple years isn't always a viable option. If you had to get rid of your vehicle during your Chapter 7 or Chapter 13 bankruptcy, chances are you're 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 isn't going to be a walk in the park, but it also isn't going to be overbearingly tough. If you want the process to go a little smoother, there are some things you should do:
- Pull your credit reports and know what your credit score is
- Only apply with subprime dealerships
- Save money for a down payment and have a cosigner ready just in case
You can request your credit reports for free once a year from each of the
three major credit bureaus (TransUnion, Experian, and Equifax) at www.annualcreditreport.com. You can also request your score for a small fee from the bureaus, but there are plenty of ways to get your credit score for free.
If you happen to notice any inconsistencies or mistakes on your reports, be sure to dispute them and get them removed before you start applying because it can make your score 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 reports, 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.
You may be required to make a larger down payment than someone with good credit would be to buy the same car. This helps show the dealer that you're making an investment in the car, 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 cosign the loan for you. A cosigner 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 reports. 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, such as an interest rate that's higher than average.
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 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. However, you may want to stick with a used vehicle if you have a recent discharged bankruptcy on your credit reports.
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. However, if you're looking at a car just a few months out of bankruptcy, 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 counteract 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 junker sitting on the 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'll get you from point A to point B without a problem.
As We See It
Bankruptcy isn't an end-all to financial life, it's just a short-term woe. Get back on the road today with an auto loan with the help of Auto Credit Express.
We'll work to match you with a local special finance dealership that knows how to handle bankruptcy. To get started right now, fill out our auto loan request form online.