How Bankruptcy Affects Auto Loans
If you have declared, or will be declaring, bankruptcy, auto loans used to finance a new or used vehicle in the future will certainly be affected. After a bankruptcy, you will no longer be able to walk into a bank or dealership and walk out a few minutes later with a low interest, no money down car loan. Nevertheless, that does not mean you cannot get a car loan after a bankruptcy.
Bad Credit Loans are Available
After a bankruptcy, you probably won't be able to get an unsecured loan or even credit card in most cases. However, you will be able to finance a new or used vehicle because of the high number of lenders that make bad credit car loans available to consumers with credit problems—even those with a bankruptcy. There are even some companies that provide guaranteed bad credit loans to people with a previous bankruptcy—as long as the bankruptcy has been discharged, meet certain income requirements and there are and have been no other credit problems since the bankruptcy.
Even though there are many lenders that make bad credit car loans to people with a bad bankruptcy, you should expect to pay much higher interest rates than you would if you still had good or excellent credit. Also, when it comes to getting a car loan, late payments on credit cards or even a home foreclosure won't deter most bad credit car loan lenders. However, if you have had past car repossessions, the lender will probably still give you a car loan, but the interest rate will be high even for a post bankruptcy automobile loan. Regardless, there are many lenders both on line and in your local area that are willing to help people with a bankruptcy get a newer used car.
Car Choices May Be Limited
While, in most cases, you will usually be able to finance a vehicle after a bankruptcy, you usually won't be able to walk onto a car dealer's lot and choose any vehicle you like. In fact, when people purchase a vehicle after a bankruptcy, it is often the dealership that helps the customer select the vehicle to be purchased. The reason for this is actually quite simple—lenders make loans to people with a bankruptcy based more on the value of the vehicle than the credit worthiness of the consumer. Lenders will not finance a vehicle for a person with a bankruptcy where the vehicle is worth less than the amount being financed. So, you either have to come up with a substantial down payment or purchase a vehicle that is attractively priced and offers sufficient collateral to the lender.
Rebuild and Refinance
Although post bankruptcy car loans come with many restrictions, have high interest rates and offer fewer choices for vehicles, they do allow you to begin rebuilding your credit. A car loan can be an excellent reference and trade line on your personal credit report as long as you keep the payments current. Also, once you make timely payments for about two years, you may be able to refinance the loan with another lender and get a much better interest rate. After three or four years, the effects of your bankruptcy will be less harsh—and as long as you don't have any other credit problems—you will soon notice that interest rates become reasonable and credit options open up to you.