How to Get an Auto Loan After Bankruptcy
No one wants to declare bankruptcy, but sometimes it’s really the only way out. It does help you deal with large amounts of debt and get your life back on track, but it’s not without its downsides. A bankruptcy will stay on your credit report for seven years or more, depending on what type of bankruptcy you filed for. That will greatly affect your ability to get new loans and lines of credit, including an auto loan.
But if you need a new car and have declared bankruptcy recently, the good news is that it’s not impossible to still get an auto loan. It’s likely going to be more difficult, but with some planning and understanding of how credit works, you can get the car you need. Here are several things you can do to show lenders that you’re recovering financially and can handle the monthly payments.
Pull Your Credit Report
The first thing to do is to look at your credit report and see what it says. If you declared bankruptcy, it’s very likely that you had a number of missed or late payments before you reached that point. You need to see exactly what any potential lender is going to see, no matter how uncomfortable or scary it might be. Knowing what the damage is will help you create a plan to deal with it. You can get your credit report online for free once a year from a number of different sources. Many credit cards and other services also provide your FICO credit score for free, which can be helpful for giving you an idea of just where you stand credit-wise.
Note that different lenders are going to pay more attention to different parts of your credit report than others. When you apply for an auto loan, the lender is going to look more closely at your history with auto loans. The more on-time payments you’ve made to automotive types of loans can sway them more than on-time payments you made to your mortgage or student loans. However, they will certainly still note if you’ve missed payments to other lenders.
It’s also important to check all of the accounts and delinquencies that are listed on your credit report and take steps to remove any that are in error or not yours. Even if you don’t believe you were the victim of identity theft, mistakes do happen. There’s no sense in taking a hit on your credit for a debt that’s not yours.
Offer a Down Payment
Having a down payment isn’t always necessary if you have good credit, but if you don’t, it is a way of showing the lender that you do have financial resources. It’s a sign that you’ve saved and are ready to commit to purchasing a vehicle and making on-time payments. The more you can pay upfront, the less of a risk the lender is taking with you. Having a trade-in can also help to bring the cost of the loan down. Even if you don’t feel like your old car is worth much or haven’t saved more than $500, it’s still a sign that you’re serious about getting your finances in order and in committing to paying for your new car.
Don’t Go for a New Vehicle
There are a few reasons for this. First, the cost of a new car is going to be higher than the price of a used vehicle. Second, lenders are likely going to be hesitant to extend the amount of credit you may need to purchase a new car. If you aim for a used car with a reasonable price tag, you not only have a better chance of qualifying for the loan, and you also have a chance to work on your credit.
By purchasing a used car, you may be able to pay off the loan more quickly. This will show future lenders that you truly have recovered from your bankruptcy and can be trusted with a larger amount of credit. Now you can look at more expensive vehicles and have a much better chance of being approved for one of them. Just be sure you don’t over-extend yourself financially. Otherwise, you could end up back where you started.
Know Your Budget
Before you even step foot on the dealership lot, you need to have looked at all of your finances and determined what you can realistically afford to pay every month without putting yourself in any sort of bind. If you get approved for a loan that you discover you can’t afford, it’s only going to damage your credit even more. Know exactly what you can afford and don’t look at cars that you know are over your price range.
Also explain your situation and your budget to the sales associate. You don’t need to hide your bankruptcy or credit issues from them — they’re going to find out about it eventually. If you’re straightforward from the beginning that you have some credit issues and have a hard budget of a certain amount, they will help you find the best vehicle within that budget.
Take Time to Repair Your Credit
You’ll have a better chance of getting an auto loan if you’ve spent six months to a year after the bankruptcy working on your credit. There are a few things you can do to improve your credit score and make your credit history more appealing. First, hold down a job. Lenders who see someone hopping from job to job every few months are going to be very hesitant about extending them credit. They’re likely to fear that you will change jobs again or, worse, lose your job.
Second, pay all of your bills on time. While it’s true that your utility bills and rent don’t play a huge part in your credit history, they can negatively impact your credit if any of these accounts are cut off or are sent to a collection agency.
Third, consider a secured credit card. These credit cards require you to make a payment upfront that is normally equal to the credit limit. However, that deposit is returned to you when you close the card. These secured cards often have high interest rates, so be very careful how much you charge on them. However, if you’re careful about paying off the balance monthly, they can help you rebuild your credit.
These are just a few tips for getting an auto loan after you’ve declared bankruptcy. Remember, it’s still very possible to get that vehicle you need, but you do have to be willing to put in the work and to be incredibly careful with your finances in order to re-establish your credit.
At G&E Motors, we have been helping customers with no credit, poor credit, and bad credit, for over a decade. We can get you financed regardless of your past credit history, even bankruptcies. Our Buy Here Pay Here program can be the best and easiest way for you to purchase your next car, truck, or SUV. We will tailor a plan to match your specific financial situation, with instant credit approval. What’s more, by making timely monthly payments, you will be developing a new credit history that can go a long way toward improving your credit score.
Our pre-owned inventory includes a large selection of quality, late model vehicles. Our professional staff provides honest, friendly, helpful service to ensure you find the ideal vehicle that matches your needs and budget. Looking for a simple family vehicle? Need a strong, reliable truck for work? We’ll take the time and effort to discuss your exact requirements – every single time. Give us a call or stop by our dealership and find out how we can help you get into the right vehicle for you.