Whilst filing under chapter 7 will show on a credit report for a period of not less than 10 years, buying a car after bankruptcy remains possible. Bad credit isn't an indefinite bar to getting a loan, it is simply indicative of the risk posed to that lender. It helps them to decide how much should be lent and the rate of interest.
Buying a Car After Bankruptcy
The longer the period that elapses between discharge and applying for credit, the more likely a loan is to be accepted. Approval for a bad credit bankruptcy car loan is vastly more likely if payments on other credit commitments have been made punctually subsequent to discharge.
Free Access to Credit Reports
Approval is a lot easier if a credit report is free from inaccurate data. Get free access to credit reports from all three major credit reference agencies and be sure to get any inaccuracies corrected before applying for a bad credit bankruptcy car loan.
Amendments must be performed through the credit reference agency, not the lender. The exception to this rule is credit cards. It is also important to provide the right supporting evidence. An attorney can be used to ensure that any corrections are handled properly.
Establish Affordability Before Buying a Car After Bankruptcy
Having a poor credit history means that a low debt to income ratio is fundamentally important. Lenders realise that those with rising financial obligations are far more likely to default. Put together a full budget and establish how much can comfortably go towards the monthly repayments.
Car Loan Lenders
A car dealership may seem like a great starting point, but this isn't necessarily the case. This is because a dealer will only offer its own limited range of loan products and cars. It may be better to use a car loan lender as they aren't tied to agents.
Whilst consumers regularly use a broker to help them get the best mortgage deal, not nearly as many people use car loan lenders. Whilst they will charge a fee for their services, this is more than offset by the savings they help the borrower to make.
Why Lenders Approve Car Loans after Bankruptcy
- Filing under chapter 7 has already reduced unsecured debt. This means that a borrower is better placed to meet any future credit commitments because of a lower debt to income ratio.
- Lenders realise that those applying for a car loan after bankruptcy cannot seek to write off any repossession deficiencies under the same chapter for the next 8 years.
- A lender can charge a much higher rate of interest on a bad credit loan.
- The car acts as collateral and can be recovered in the event of default.
Buying a car after bankruptcy is relatively easy to achieve, provided that the correct approach is followed. Whilst a car loan lender can help to reduce the cost of borrowing, it is essential that the borrower can afford to make the repayments. Don't borrow more than can be realistically afforded each month.
Sources
myfico.com
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional before proceeding.
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