A common misconception associated with bankruptcy is that a person will be unable to obtain any type of significant financing for a period of seven to ten years. While the stain of a bankruptcy will likely show up on your credit score for this amount of time, it in no way means that you will be unable to get an auto loan while the bankruptcy is on your credit report. You can get an auto loan after a bankruptcy. In order to ensure that the process of securing an auto loan goes as smoothly as possible, it is important to take the following information into consideration.
High Risk Loans
Keep in mind that people with a bankruptcy on their credit score are considered to be a “high risk” loan. Many traditional banks and lending institutions will avoid lending to high risk consumers, so the lender who is willing to work with a previously bankrupt person is taking a substantial risk. As a result, the interest rate and fees associated with the car loans after bankruptcy are definitely going to be more expensive.
Dealerships known as ‘buy here, pay here’ lots will be the most likely to finance a person with a bankruptcy on their credit report. These dealerships, often advertised on radio and in print, usually make statements like “we finance anyone” or “come on down and we guarantee you will get in a car today!” Buy here, pay here dealerships not only sell you your car, but they also become your banker. It is important to remember that because the dealership is taking a risk on you, they will most likely require a high interest rate. For this reason, it is essential that you purchase a cheap car that you can afford. Keep your payments low, build up your credit, and pay off the car as soon as possible.
Get Approved!
There are several things you can do to make the process of securing a loan after bankruptcy much easier. One way of easing the approval process is by finding a co-signer. A co-signer is a person, usually a friend or family member, who will guarantee to the lender that you will make timely payments. Cosigners are individuals with a good credit history who sign the loan application with the primary borrower. A co-signer also accepts responsibility for the loan in case you default on the payment. In having a co-signer, the lender feels more comfortable that the money they lent you will be repaid.
Another way you can give yourself a better chance of getting approved is if you can show evidence of a steady income. Lenders vary in terms of requirements, but if you can prove that you have worked at the same company for a period of two or more years, it will significantly help in securing a loan after bankruptcy. The lender will likely feel comfortable in the fact that you should continue receiving a paycheck in the future.
A large down payment will also help in obtaining approval for a car loan after bankruptcy. Your credit is not as important if you have a large down payment on the vehicle. This shows the dealer that you are a serious buyer and that you are not likely to default on your payments. A large down payment may also help keep your interest rate low and more manageable. The bigger the down payment, the better the loan terms and likelihood that you will get approved. Typically car buyers put down less than 10 percent, but with a bankruptcy you should aim for a 20 percent down payment. This makes the loan less risky for the lender so they are more likely to lend you the money.
Remember, it is important to purchase a vehicle that you can afford and to make timely payments. Your goal here isn’t to buy your dream car, but to start the process of repairing your credit. BlueSky Auto Finance can help you in obtaining an auto loan after bankruptcy. For more information, click here.
