Can Someone Who Has Gone Bankrupt Get A Car Loan?

Posted by on December 16, 2019 @14:35:47 EST
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Filing for bankruptcy can make the process of financing a new or used car more difficult. Bankruptcy filings can show up on your credit report for years after the event. This can affect your credibility with lenders who may be cautious about providing credit to those with a strained financial history.

Thankfully, there are lenders out there who do provide financial services to those who have suffered through bankruptcy. Getting a car loan with bad credit does not have to be impossible. However, it is important that you are realistic with your expectations. The interest rate that you receive from a car loan with bad credit may be higher.

Nevertheless, there are things that you can do to make the process easier and more financially sustainable for you in the long-term. Let’s look at some of the specific things to keep in mind when pursuing a car loan with bad credit after bankruptcy and discuss some actionable steps you can take to secure a car loan that works for you.

Start By Getting Your Expectations Clear

It is important to be clear about what you should expect when heading into the market for car loans with the bad credit that follows in the wake of a bankruptcy. You will likely be unable to qualify for the best possible rates available, as lenders are always wary of providing credit to

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those who have had difficulty repaying other loans in the past.

You also need to be realistic about the type of vehicle that you will be able to get after filing bankruptcy. No reputable lender will be willing to provide you with the money to buy a luxury model if your credit is less than ideal. Avoid getting discouraged and think about the practicality of a vehicle when you are shopping around.

Find The Right Lender

There are many reasonable lenders around these days who cater to providing car loans for those with bad credit. Some even specialize in assisting clients who have been through bankruptcy in the recent past. Since bankruptcy filings are far more common these days than in the past, the market for credit has now moved in a direction that accommodates those with poor credit. 

However, these lenders do not simply provide credit on a whim. You can be sure that they will look at many different aspects of your current financial stability and what the details of your bankruptcy filing were like. Be prepared to provide information regarding your current income and expenses, as well as your current job situation. While these lenders are there to help those with bad credit secure a car loan, they will still have a reasonable expectation that the loan they provide you will ultimately be repaid!

Keep in mind that even though the process of finding a car loan with bad credit might be difficult, it is not always best to simply agree to the first provider who offers you credit. Make sure to do some research to be more aware of what your options are. Avoid predatory lenders who will leave you in a much worse financial situation than you started out with. Always make sure to read and understand the terms of any credit contract that you agree to!

Get A Pre-Approval On Your Loan

Before searching for a vehicle, it is always a good idea to get pre-approved for a loan first. This will allow you to know the interest rate and other terms of the loan agreement before you agree to it and already have your eyes set on a particular make and model of a vehicle.

It is usually a mistake to spend time shopping around and becoming attached to a particular vehicle before knowing that you will have the means to pay for it when the time comes. Having the confidence that you will have the funds available when going into the market for a car will provide you with the ability to realistically weigh your options.

Boost Your Credit In Other Ways

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Taking some steps to bump up your credit score before heading out to get a car loan with bad credit will allow you to expand your range of options. Better credit scores will allow you to receive more reasonable interest rates from a larger segment of financial institutions. While improving your credit score can take time (which you might not have), it can often be the most financially prudent route to take. 

If you want to boost your credit score after bankruptcy, first start out by determining what your current credit score or rating is. While you can be sure that your credit rating is not ideal if you have recently been through a bankruptcy, it is important to be aware of where you are starting from in order to start the process of rebuilding.

Depending on how the process of bankruptcy has affected your existing debts, it is important to begin paying these off as soon as possible. Making (at least) the minimum payments before they are due is essential to avoid any further damage to your credit score.

Learning how to budget your finances and learning where your monthly income is actually going is a crucial financial skill to learn. You will be better able to keep up with your debt payments if you set a budget and stick to it. With time, your credit score will slowly improve and you will be able to enjoy better rates than you would if you pursued a car loan with bad credit.

It is also important to keep an eye on how much of your existing available credit you are currently using. Your credit utilization rate represents the percentage of your potential credit that you are currently using. For example, if you have access to ten thousand dollars worth of credit and you currently owe approximately five thousand dollars, then your credit utilization rate sits at 50%. Lenders will look at this rate when making a decision about whether to lend to you or not (and what interest rate you should receive). For best results, it is advisable to ensure that your credit utilization rate sits at less than 50% – and ideally even less than 35% – to highlight to lenders that you are a low-risk borrower.

Save Up For A Larger Down Payment

To cut down on your need for a large car loan with a bad credit history, you can also save up a larger down payment to make on the vehicle of your choice. While saving money can be difficult, this is ultimately the cheapest route to take in any case.

To save efficiently for a larger down payment, first determine the amount of a monthly car payment that you would be able to afford. Based on the overall cost of your car and the interest rates that you have been offered by some financial providers, you will be able to get a sense of how much money you will need to pay at the outset in order to lower the monthly amount that you would need to pay. Once you know the size of the down payment that you need, you will be able to start working towards this goal.

To save effectively, personal finance experts often recommend that you take the thinking out of the equation. By making the process of saving automatic, you will remove the temptation to delay your saving into the future. This can be done by setting up a savings account where a proportion or a set amount of your monthly income will be set aside for your down payment. This psychological trick can allow you to rapidly save up the necessary funds for a vehicle before you know it!

While saving a down payment can be helpful, it is also important to be realistic when working towards a savings goal. Make sure that you and your household do not suffer excessively each month with the amount that you are setting aside each month. If you are having trouble making ends meet as it is, it may be better to spread your savings goal over a longer period.

Naturally, saving money takes time and diligent effort. If you need a vehicle right now, it can be hard to wait until your finances are secure enough to do the financially sensible thing. Ultimately, your decision and timing will depend on weighing the importance of many different factors, though saving a large down payment will usually be the most financially responsible option.

Avoid Predatory Lenders At All Costs!

No matter how badly you need a vehicle, it is imperative that you avoid predatory lenders at all costs. While you can certainly expect that the interest rate you will be paying on your car loan could be quite high, avoid any lender who insists on outrageous rates that are completely unreasonable (such as triple-digit interest rates). Unfortunately, there are lenders in the market today who take advantage of the vulnerability of those who have been through a bankruptcy.

To make sure that you steer clear of these lenders, it is vital that you read through the fine print of any loan agreement before signing. If you are uncertain about any of the terms or rates, then ask for clarification. If the lender is evasive in answering your questions, then find credit elsewhere. The last thing that you want is to be trapped in debt and forced to take more extreme measures than filing for bankruptcy in the future! 

Will I Be Able To Get A Car Loan With Bad Credit Following A Bankruptcy?

Serious financial difficulties can happen to anyone. Even if you have good spending habits, accidents and other unexpected difficulties can quickly leave you in an untenable financial situation. If you have needed to declare bankruptcy in the recent past, then you are not alone and there is a good chance that you will still be able to receive a car loan even with the bad credit that you may have.

The only way to know if you will be able to secure a car loan with bad credit following a bankruptcy is to explore the options with lenders in your area or online. Spend some time researching the credit providers out there and contact the options that seem promising. Make sure to ask questions and take your time in assessing the best route to take.

To be sure, it is important that you keep the tips and steps outlined above in mind throughout the entire process. While it is difficult to restore your credit following a bankruptcy, there are ways to move forward and get your financial situation back in order. Applying for a car loan with bad credit is never easy, but thankfully there are many options for those in need these days. 

If you’re in the market for a bad credit car loan but you’re having a hard time figuring out where to start, give the team here at a call. We specialize in helping people with all kinds of different credit scores get approved, and we just might be able to help you out.

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