When it comes to getting auto loans, a bankruptcy will always have some impact on your ability to choose from loan options to finance a vehicle. However, bad credit car loans have evolved in recent years to the point to where finding a car loan–even with a bankruptcy–is fairly easy. More Americans are declaring bankruptcy than ever. So, if you have recently declared bankruptcy or are thinking about doing so, you are certainly not alone. Nevertheless, there are some things you should be aware concerning a bankruptcy and getting a car loan.
Although bankruptcy often seems like the end of the road for many that need to seek the financial shelter that it provides, it is actually a new beginning that will allow you to take control of your finances and begin down the road to financial recovery. While there will certainly be many credit options you will not have–purchasing a car is not one of them. In fact, as soon as your bankruptcy is discharged, you will find there are many lenders willing to help you with a car loan.
Why? It is simple actually. When your bankruptcy is discharged, you will have more financial freedom and not be under the constant strain of trying to catch up on payments all the time. This will provide you with a little more income for necessities–like a car. This is especially helpful if you still have an old car that is paid off. You can still use it as a trade in on a better vehicle. So, think of a bankruptcy as a new beginning. A beginning with challenges for sure, but one you can manage and make the best of.
Getting a car loan after a bankruptcy should be the first step to repairing the damage that a bankruptcy can do to your credit. Even though you won’t be able to get a credit card–without putting up a security deposit–you will still be able to finance a $10,000 or $20,000 vehicle. Although there will be some restrictions associated with a car loan after a bankruptcy, there are plenty of loans available. A high dollar value car loan is one of the best ways to reestablish your credit, and after a few years will serve as an excellent credit line on your personal credit report–as long as you keep the payments up to date.
You should be aware that once you have a bankruptcy, interest rates that are initially offered to you will sometimes be high. In fact, you should expect rates that are often between 5 and 15 percentage points higher than loans for people with good credit. However, if you make your payments on time for a couple of years, you should be able to refinance the car loan at a much lower interest rate.
You should also know that you probably won’t be able to buy any vehicle you like. In most cases, lenders that provide car loans to people with a bankruptcy place a lot of emphasis on the value of the vehicle you purchase. The lender will be more concerned about the collateral the vehicle provides for the loan than the type of vehicle you want to purchase. So, you’ll need to purchase a vehicle that will result in an amount being financed that is, ideally, less than the value of the vehicle.