After you’ve been discharged from bankruptcy, your finances are likely in a better place than they were before – your credit score is another story. With a low credit score, you may think you're out of luck when it comes to auto financing, but there are car loans for borrowers who have recently completed a bankruptcy. If you're ready to take on your next auto loan, read on!
The Bankruptcy Aftermath
Depending on how you filed for bankruptcy, your credit reports could be reflecting it for either seven or 10 years.
If you filed for Chapter 13, odds are you already have a few years of that bankruptcy being reported on your credit reports, since it starts being reported the day that you file. A Chapter 13 bankruptcy filing lasts for either three or five years, which means once you’re discharged, the bankruptcy is only going to be reported for another four years, maximum.
Chapter 7 bankruptcy, however, could be on your reports for up to 10 years. While the process of a Chapter 7 bankruptcy is very quick (typically only a few months), the lasting effect on your credit reports could impact new credit consideration for nearly a decade.
Just because you filed for bankruptcy and it hurt your credit score doesn’t mean that you won’t be able to get a car loan. It can be a red flag for some lenders, but you’ve still got options!
Light at the End of the Bankruptcy Tunnel
If you just got out of bankruptcy, your credit is probably a little worse for wear. On the plus side, completing a bankruptcy takes work, and it also shows that you’re willing to put some things on hold to get your finances back in order.
Being discharged from bankruptcy usually means that you have a clean slate ahead of you, making auto lenders more likely to consider you for financing than if your debt was overwhelming, which is good news even though your credit score has taken some damage.
There are bankruptcy car lenders that specifically work with borrowers in these situations, called subprime lenders.
Subprime Auto Loans for Bankruptcy Borrowers
Subprime simply means “bad credit” in credit-speak. Many traditional lenders may not consider you for financing with a bankruptcy showing on your credit reports, but subprime lenders look at many aspects of your financial health alongside your credit reports.
With that in mind, you can usually get into a subprime auto loan rather quickly after your bankruptcy has been discharged, even if the discharge hasn’t appeared on your credit reports quite yet. If you have your discharge papers handy, you can apply for a car loan soon after your Chapter 7 or Chapter 13 bankruptcy is completed.
Once you receive a copy of your discharge documents or the discharge is reported on your credit reports, you can start looking for a dealership that’s signed up with subprime lenders. These are called special finance dealers. You’re going to have to meet the lender’s requirements, which could vary depending on your lender. However, most tend to carry similar requirements.
Here are some common stipulations by subprime auto lenders:
- Income – Have a minimum monthly income of around $1,500 to $2,500, pre-tax, proven with recent computer-generated check stubs that show year-to-date income.
- Work history – Held the same job for around six months to a year, without large gaps between jobs for around three years.
- Living stability – Lived in the same area for at least one year, proven with a recent utility bill in your name or recent bank statement.
- Down payment – At least $1,000 or 10% of the vehicle’s selling price; a trade-in with equity can also help meet this requirement.
- Working phone – Must have a working cell phone or landline in your name, no prepaid phones.
- List of references – A prepared list of around five to eight personal references with complete contact information (name, address, phone, etc.).
- Driver’s license – Must be valid and has your current address; it can’t be revoked, expired, or suspended.
Once you have these items gathered, you’re halfway to being considered for a car loan by a subprime lender! Sometimes, knowing where to start is the hardest part of preparing for an auto loan, especially if your credit isn’t the greatest.
After you have all your information verified by the special finance manager and the subprime lender, you’re told what car payment you qualify for. From there, you choose a vehicle that fits the monthly payment.
One of the biggest advantages of getting a subprime auto loan after bankruptcy is that these loans are reported to the credit bureaus, which means a chance for credit repair. If you file for bankruptcy, it often wreaks havoc on your credit reports, but with on-time payments on your car loan, you can work to rebuild your credit score to its previous glory – or gain the illustrious credit score you've always wanted.
Finding a Subprime Auto Loan
Getting into a subprime auto loan means finding a dealership that’s in contact with subprime lenders, and it can be hard to tell which ones are signed up with them. That’s where we at Auto Credit Express want to help!
We have a nationwide network of dealers that are equipped to work with bankruptcy borrowers, and we can look for a dealership in your area at no cost, with no obligation. To get started, fill out our car loan request form and we’ll get to work finding a local dealer with the lending options you need.