If you’re exiting bankruptcy and need a new car, then you’re probably worried that no vehicle financing options are available. Fortunately, there are several good options for post-bankruptcy filers especially if they’re willing to wait a year before buying a new car. Let’s take a look how you can get a car loan after bankruptcy:
Credit Report Condition
The status of your credit report and your FICO score plays a huge part in whether you can get a car loan and how much you’ll pay in interest. Lenders that are not subprime usually want a score that’s at least in the 600s before they will consider lending to you after bankruptcy. Many post-bankruptcy filers may be happily surprised to find that even right after bankruptcy, their FICO may be closer to “acceptable” than they expect.
- Monitor your credit report and score. To determine if you’re likely to qualify for loans that aren’t subprime, continuously monitor all three credit reports—Experian, Equifax, and TransUnion—in the months following your bankruptcy.
- Improve your FICO score. By keeping up payments on post-bankruptcy debts and strategically taking on new credit, you can improve your FICO score significantly in the months after your bankruptcy discharge. For example, if you have a mortgage that survived bankruptcy, paying on time will help to improve your credit score significantly. Also, getting a secured credit card with a lender that has a policy of reporting payments to the credit bureau will go a long way in helping you look good in the eyes of vehicle finance companies.
- Proof of payment. If you currently have a car payment that survived bankruptcy, gather proof of your timely payments. Sometimes car loan companies may not report your post-bankruptcy payments to the credit bureau even if the loan was reaffirmed. By gathering proof that you’ve continued to make timely payments despite your bankruptcy, you’ll improve the chance of lenders considering you for financing.
If you want to increase your car loan options and lower your interest rate, it’s a good idea to have a large down payment available. Take the time to determine the “staying value” of the vehicle before handing over a down payment that’s too large. You don’t want to lose cash by investing too much upfront in a vehicle that’s old and is a model known for having repair issues.
Don’t be afraid to seek out a preapproved car loan. Walking into a car dealership with a preapproved loan is like walking in with a suitcase of cash. Since you’ve already secured a car loan all they need to do is sell you the car. This also gives you room to negotiate a lower price. If you’ve done a little work on improving your credit after bankruptcy, getting preapproved for a car loan is likely. You can even apply with several lenders online. If you’re credit is decent, at least in the 600’s, you may secure a preapproved loan with an interest rate of 13% to 18%.
“Buy Here Pay Here” financing is always risky but if you shop around and thoroughly vet the lenders, you may find a fair deal. However, fair is relative since “Buy Here Pay Here” financing is usually subprime with interest rates that run as high as 25%. Just do the math and make sure you can afford it and that there’s some light at the end of the tunnel—in other words make sure you can pay that loan off in a few years.
Getting a car loan after bankruptcy will take a little patience but it’s possible as long as you’re willing to work on your credit and do your research.