You've been through bankruptcy and have come out the other side with a lower credit score, significantly less debt, and in need of a car. What now? Getting a post-bankruptcy auto loan can land you right back in hot water if you don't go about it the right way.
Auto Loans after Bankruptcy
When you get an car loan after bankruptcy, it's important that you go about it the right way so that you don't end up in the same kind of situation a second time. This means planning and preparation before you dive in.
We're here to help you get the most out of your situation, and we want to help you make the process as smooth as possible. Follow these five tips to plan and prepare for success with your post-bankruptcy auto loan:
- Know your credit – If you don't know your credit score and what's on your credit reports, you leave yourself open to what lenders tell you is the best they can do. It's also a good idea to review your credit after a bankruptcy, so that you can see how your score was impacted, and make sure that there aren't any errors on your credit reports. You also have the opportunity to research the kinds of offers you may get as a post-bankruptcy borrower.
- Calculate your budget – It's important to stick to a budget in any car buying situation, but especially after a bankruptcy. Making sure you get a vehicle that's well within your budget is a good way to ensure that you don't overextend yourself. The subprime lenders you're most likely to work with after bankruptcy want to make sure you can comfortably afford a loan, as well. For this reason, they usually require you to make a minimum income of $1,500 to $2,000 a month before taxes.
- Give yourself time to work on your credit – It's typically not too hard to get an auto loan after bankruptcy, but the type you're going to qualify for is usually a bad credit car loan. These come with higher than average interest rates, shorter than average loan terms, and higher monthly payments. If possible, take some time to repair your credit by paying all your bills on time, catching up on any late payments, and keeping credit card balances low. Spending six months to a year doing this can make a big difference in your credit score, which can improve the rates and terms you're likely to see on an auto loan.
- Don't finance a fancy vehicle – After a bankruptcy isn't the time to finance that fancy car you've always wanted. Start small, with an affordable, reliable vehicle that meets your driving needs. By doing this, you can build your credit over the course of your loan. As a general rule, lenders prefer that your auto loan payment takes up as little of your monthly budget as possible – getting an expensive car is likely to take up more of your budget than is good for your finances. Generally, lenders want you to keep your payment to income ratio at 15% to 20% at the most, but the lower the better. An affordable vehicle is more likely to get you further under a lender's payment to income limit.
- Have a down payment ready – When you take out a bad credit auto loan after a bankruptcy, you're required to make a down payment. The more money you put down, the better. Lenders typically require at least $1,000 or 10% of the car's selling price, whichever is less. Down payments can be made in cash, trade-in equity, or a combination of the two.
Let Us Help You Find Your Next Car Loan
Auto Credit Express works with a large network of special finance dealerships all across the U.S., including dealers that have lenders that specialize in helping people who need a vehicle after bankruptcy. Don't struggle with your credit after your bankruptcy is discharged, begin improving it with an auto loan.
By filling out our easy, no-obligation car loan request form, you can take the first step toward your next vehicle. We'll get the process started by matching you to a local dealership. Skip the struggle, start here instead!