Getting approved for auto financing after Chapter 7 bankruptcy can be a little intimidating. The Chapter 7 bankruptcy process only lasts a few months, but your credit score takes a hit once all is said and done, and the bankruptcy stays on your credit reports for up to 10 years. If you lost a car during a Chapter 7 and you recently had your bankruptcy discharged, the good news is there’s post-bankruptcy auto financing available. The keys to getting approved are to work with the right lender and follow a few tips.
Where to Find Post-Bankruptcy Auto Loans
Once a bankruptcy has been discharged, you have a better chance of getting approved for a loan. When you feel ready to finance a vehicle, where do you go to find a post-bankruptcy car loan? We can help with that, but first let us explain which dealerships and lenders you could be working with.
The first type of dealer that offers post-bankruptcy auto financing is a special finance dealership. These dealers work with subprime lenders, who specialize in working with borrowers dealing with credit challenges, such as bankruptcy.
Although subprime lenders run credit checks, they consider outside factors such as income and residence stability for approval. Plus, because they report your payment history to the credit bureaus, so you get the chance to improve your credit score while the Chapter 7 bankruptcy is still listed on your reports.
The second type of dealership is a buy here pay here (BHPH) dealer. Sometimes called tote the note dealerships, BHPH dealers offer in-house loans on their vehicles, which means they're also lenders.
It’s easier to get a car loan at one of these places since they typically don't check your credit, instead relying on your income and down payment to qualify you. However, this could mean that they don't report loans or on-time payments to the credit bureaus, so it may not allow you to improve your credit score.
Keep in mind that, with both type, you can expect a higher than average interest rate, but you may be able to lower it by adding a cosigner or co-borrower to the loan.
Tips to Help Get You Approved after Bankruptcy
Before you head to a dealer and start the car buying process, you should consider these three tips that could increase your odds of getting approved for an auto loan after bankruptcy:
- Time is on your side – Once your Chapter 7 bankruptcy is discharged, you could head to a dealership and apply for a car loan. However, the longer you wait post-bankruptcy to get an auto loan, the better your chances of getting a lower interest rate. Since a bankruptcy’s impact on your credit score lessens over time, if you can wait a few years and give your credit a chance to improve, you should. A good way to begin building your credit back up while you wait is to apply for a credit card. Start small, and work your way toward a car loan.
- Research vehicles – If you need an auto loan, you should consider what you need a car for and what you have to have in your next one. Read reviews from previous owners, look up safety ratings, and compare the prices of different models. This way, you're prepared for your trip to the dealer, with realistic expectations for the types of vehicles you may qualify for after bankruptcy.
- Prepare a budget – Once you have an idea of the car you want, you should prepare a budget. Besides the vehicle's price, you need to consider tax, title, license fees, as well as insurance, fuel, and maintenance into the overall cost of the car. Use online calculators to get an estimate on how much vehicle you can afford, and see if the car you want fits within your budget.
Ready to Get Started?
When you need to get approved for auto financing after Chapter 7 bankruptcy, Drivers Lane is here to assist. We help borrowers with credit issues find car dealerships in their area that can work with past bankruptcies and more.
Get the process started today by filling out our free and fast auto loan request form. We look forward to helping you!
