By David Pilley on November 29, 2010
.jpg.aspx?width=75&height=75) You’ve recently filed for bankruptcy. You’ve had debts discharged, and now your declaration of bankruptcy will appear on your credit score for the next seven years. A bankruptcy will hinder your attempts to getting approved for a loan, but you can’t wait seven years until it’s no longer on file in your credit report. It is possible to get a car loan when you have declared bankruptcy, but there are some things you need to do and some features you need to look for when doing so.
First things first, you must always read a copy of your credit report. If there are any errors, you should write a personal statement contesting the inaccurate information. The bankruptcy declaration is obviously not an error, but there could be something wrong in the reported amount of a previous debt settlement or a charge-off. Everything needs to be accurate if you’re trying to improve your credit.
You need some time to build a better history after the nadir of bankruptcy. If you had a bank account closed, you need to open a new one. It could take between six months and a year to build a healthy relationship with your bank again, so be patient here.
To rebuild your bank account, you need a source of income. This could be difficult if you recently lost your job, which would be the main factor in your bankruptcy declaration. You need a reliable source of income to be approved for a loan, so lenders need to see a few recent pay stubs or bank statements showing you are able to handle paying back the car loan on a schedule.
Something you will probably have to do is refinance the loan. While you are bankrupt, the interest rate on your loan will be substantially higher than during times of good credit. A rate of twenty to thirty percent is not out of the question. (For an affordable loan, it will also need to be a used car instead of a new car.) After a few months of timely payments, you can refinance for a lower interest rate.
Two further factors to account for are a down payment and a cosigner. Paying a portion of the loan immediately means less to pay in the long run, and it could also improve your chances of getting approved for a car loan. You can also consider having a cosigner sign the loan also. If your cosigner has a substantially better credit score, this could help you get a lower interest rate. Make sure you can afford the loan, so both of you do not get penalized.
Don’t think you are automatically disqualified for a new loan if you are bankrupt. It won’t happen immediately, but through a few months of building back your bank account, maintaining a healthy source of income, and preparing for an initially high interest rate, you may eventually have the freedom again to get around in a car.
|