Bankruptcy auto loans are a very useful way to get your credit back on track after completing a Chapter 7 or 13 bankruptcy filing. Consumers can apply for these types of loans as soon as the day after closing bankruptcy, in order to get on the road to credit recovery. These loans often require minimum approval criteria and as long as payments are made on time and in full from month to month, they can be that all-important first step to restoring your credit score. Ownership of a motor vehicle is a vital necessity for most people to get to work in order to pay their creditors.
The two types of bankruptcy that can be filed may affect your rate on this type of loan. Chapter 7 is a liquidation bankruptcy where all of your assets are sold off and the money generated from sale or auction is distributed to all active debts. Chapter 13 is a restructuring bankruptcy in which a payment plan is established where all of your creditors are paid off over a period of time that usually runs three to five years. A court will not order your assets liquidated and will design a payment structure that will determine how high a percentage of the debt that you will need to pay off. Filing for either of these protections is a serious decision that must be taken with extreme caution, as a bankruptcy will be reflected on a credit report for ten years.
Due to the fact that lenders consider individuals who file for bankruptcy high credit risks, interest rates and payments will often be higher than normal. The best way to try to keep rates and payments as low as possible is to consider the make and model as well as the condition of the vehicle you aim to get a loan to buy. These factors will contribute to the amount of financial repsonsibility on your part, so aiming for an inexpensive vehicle in addition to one that is used instead of new, will help you keep your commitment to being on time with your payments. A lower payment and rate will make it easier to get your credit in good standing and help you afford those monthly payments.
Even after the closing of a bankruptcy, it’s important to check your credit report for any outstanding open accounts that have been paid but still show a delinquent balance. These will continue to affect your credit negatively and will make an already challenging situation even more difficult. You may also want to add an explanation page to your credit report that explains the reasons for your bankruptcy filing, which can also be reflected on your loan application. Loan officers are always willing to listen and consider each situation on its own merits and will sometimes make the consideration process easier, especially if there is a recent history of steps taken to resolve your credit issues. Once your loan is approved, it’s always a good idea to keep current on interest rates. After a certain period of time, usually a year or two, an account in good standing with on time payments can be considered to qualify for lower interest rates.