Tips for Getting an Auto Loan After Declared Bankruptcy

The decision to declare bankruptcy can have long-lasting effects on your credit. Depending on the type of bankruptcy you choose, it can impact your ability to qualify for loans and other credit card offers for as long as a decade. Whether you choose to file for Chapter 7 or Chapter 13 bankruptcy, there are ways to buy a car even after you’ve filed and start to rebuild your financial situation.

Before attempting to obtain an auto loan, you should understand the different options available and what to expect when applying. First, it’s important to know that most lenders will run a credit check before approving an auto loan. Your bankruptcy will appear on your credit report, so you’ll want to make sure you’re choosing a lender that works with bankrupt borrowers. Additionally, be aware that the type of car you purchase can have a significant effect on your borrowing rates.

You can apply for a loan during bankruptcy, but you will need to get court approval to do so. Your bankruptcy attorney will submit a motion to incur debt that outlines the loan amount, repayment terms and how it fits within your bankruptcy plan. The judge will review the request and approve it if they find that you can afford the payments and that the loan won’t negatively impact your ability to pay creditors.

If you decide to apply for an auto loan during bankruptcy, you should work closely with your bankruptcy lawyer Maui and your credit repair company to help you prepare. You should also prepare a down payment or save enough cash to cover the car’s full cost, which can improve your chances of getting approved for a loan. You can also shop around for a lender and try to find one that works with bankrupt borrowers. Typically, local banks and credit unions have more flexible lending requirements and can be a good place to begin. Avoid payday lenders, guaranteed financing companies and “buy here, pay here” dealerships that charge exorbitant interest rates.

After filing for bankruptcy, you’ll need to work on your credit recovery by establishing a track record of making timely debt payments. Once your bankruptcy has been discharged, you’ll be able to apply for an auto loan and likely be able to qualify for a better rate.

When shopping for an auto loan, be sure to compare the interest rates and fees charged by different lenders. The credit bureaus typically allow you 45 days to rate shop without dinging your credit, so you should take advantage of this window. This will give you the best chance to find a loan with the lowest APR.

You can also consider getting a co-signer for your loan, which can help you qualify with a lower APR or with a higher loan amount. Make sure the person you ask to co-sign with you fully understands that they are legally responsible for your loan if you can’t make your payments.

 

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