Financing your first car following a bankruptcy can be a scary proposition. However, getting an auto loan — one of the best credit building tools around — is possible if you are working with the right lender. But there's a right way and a wrong way to go about it, so be sure to check out our tips for getting approved for an auto loan after a bankruptcy.
Tips for Getting an Auto Loan Following a Bankruptcy
The right way to buy a car after a bankruptcy involves research and preparation. Hopefully, these tips will allow you to improve your chances of approval, lower the cost of financing, and get you on the way to rebuilding your credit.
- Know Your Credit and Your Budget
It's a good idea to review your credit reports after a bankruptcy, especially if you are trying to get a car loan. Make sure that there are no mistakes and dispute any errors if you come across any. It's also important to understand your budget to make sure you stick to your price range. Now is not the time to overextend yourself by purchasing a vehicle that you cannot afford.
- Take Time to Reestablish Your Credit
While you can get a car loan immediately after receiving your discharge, it may be in your best interest to take some time to improve your credit situation. By waiting, you have more time to reestablish your credit. Plus, the further in the past it is, the less of an effect it has on your credit. We suggest that you take some time and try to establish a strong payment history on a credit card (secured or unsecured) or two. Just use them for small purchases, make all the payments on time, and keep the balance(s) below 30% of their limit(s). This can help you improve your credit score, which should allow you to qualify for a better interest rate.
- Be Prudent with Your Vehicle Options
At this point, it's better to get an affordable vehicle that you can comfortably afford and can rely on. An interest rate on a post-bankruptcy car loan will be higher than normal, but you can balance that with the right vehicle choice. It's probably best to stick to a car with a payment that's less than 15% of your monthly income. Make sure to research vehicles to identify those known for their reliability and dependability. Getting an affordable and reliable vehicle now will help you along the path to rebuilding your credit.
- Have a Down Payment
Buyers with poor credit are usually expected to provide a down payment. But even if you aren't, it's in your best interest to have one. A down payment can help you offset the effects of a higher interest rate. The larger the down payment, the smaller the loan and the more you save in interest charges. If you head to the dealership with 15-20% of the purchase price as a down payment, your chances of getting approved will also increase.
A Final Tip
A car loan can help you improve your credit by giving you the opportunity to make timely payments on a big ticket purchase. But the challenge is often finding a dealership that can get you approved.
Many dealerships do not work with applicants with less than perfect credit. What you need to do is find one with a special finance department and subprime lending connections.
Auto Credit Express can help you by making that process simple and hassle free. We connect car buyers with poor credit to local dealerships that have the experience and lending connections to help people in almost every credit situation.
We can help you find financing if you complete our free and simple car loan request form.