A past bankruptcy makes it more difficult to get approved to finance a vehicle in the future. This is because a bankruptcy shows up on your credit report for seven or ten years and negatively impacts your credit, both of which make it tougher for lenders to approve your car loan application. But there are still ways you can get approved.
Institutions Who May Finance You
The biggest challenge, perhaps, of getting financed after a bankruptcy is finding a lender willing to work with you. The majority of traditional lenders, banks and car dealerships do not work with applicants who have bad credit.
But there are institutions that are willing to finance people who have been through a bankruptcy. Here are some of the avenues you can consider.
- Credit Unions - Large national banks and other big-time lenders have strict policies in place. It's likely that they will not approve anybody whose credit score does not meet their threshold. You may have better luck at a local credit union. They may be more flexible with their lending practices, especially if you have an existing relationship with them.
- Special Finance Car Dealerships - The majority of dealerships go through traditional banks and lenders. Others, however, are signed up with more flexible lenders. Subprime lenders are willing to work with applicants with bad credit or a previous bankruptcy. However, they don't offer loans directly to borrowers. The only way to get financed by a subprime lender is to locate a special finance dealership that is signed up with them.
- Buy Here Pay Here (BHPH) Dealerships - Another avenue to get financed after a bankruptcy is through an in-house financing dealership. These places do not use banks. Instead, you buy your car and negotiate the loan directly with the dealership. The benefit here is that these places typically do not run credit checks, so virtually anybody with the proper income can get approved. However, there are several drawbacks to financing a car at a BHPH car lot that must be considered. For example, they typically only sell older used cars and only offer high interest rates. If you do settle for a BHPH dealer, make sure they report your loan and payments to at least one of the three national credit bureaus.
Tips to Help You Get Approved
Along with finding the people that can get you financed, there are also things you can do to help yourself along the way. These tips might be able to improve your chances of getting approved for a car loan after a bankruptcy.
- Choosing a Modest Vehicle - With a bankruptcy in the picture, you will be facing a higher interest rate, therefore making the monthly payment more expensive. However, you can help yourself and your budget out by choosing a vehicle you can comfortably handle. Aim for a car that comes with a payment that accounts for less than 15% of your monthly income. Getting a vehicle you can comfortably afford will make it easier as you work toward rebuilding your credit.
- Making a Larger Down Payment - A down payment decreases the amount of money you need to borrow. From the lender's point of view, this makes approving you less of a risk. Therefore, making a larger down payment increases your chances of getting approved. Do what you can to save up as large of a down payment as possible if you need a car loan after a bankruptcy.
- Using a Cosigner - A cosigner is somebody with good credit who agrees to sign the loan agreement alongside you. This puts them on the hook both financially and in terms of credit, so make sure you understand the implications of using a cosigner.
- Taking More Time to Improve Your Credit - Your chances of getting approved improve as you get further removed from the bankruptcy. It also gives you more time to work on improving your credit standing. The best way to do that is establishing a strong payment history on a credit card or two.
These tips can help you accomplish your mission of financing a car after bankruptcy.
The Bottom Line
It's still possible to get approved to finance a vehicle even after you have been through a bankruptcy. Our tips on how to help your chances and what institutions may be able to finance you can assist you along the way.
If you need a post-bankruptcy auto loan, you should know that Drivers Lane can help. We specialize in helping people dealing with bad credit, such as a previous bankruptcy, find auto financing.
Our service is free, fast and doesn't put you under any obligation to buy. Get started right now by filling out our car loan request form.