How to Buy a Car after Filing for Bankruptcy

Filing for bankruptcy offers a number of beneficial legal protections but also affects your ability to get approval on future loans. Many traditional lenders will automatically disqualify you if your bankruptcy occurred within the past few years. As such, you will need to consider alternative options to gain financing on your car.

Alternative Lending Options

Banks and car dealers are the most traditional sources of financing for a new or used car. These lenders tend to offer the best rates as well as the best loan terms. Since you generally cannot work with these lenders following your bankruptcy, you will need to prepare to sacrifice some of these options in order to buy a car. Alternative lenders include online lenders and high risk lenders. Online lenders often require very little from you in terms of an application. Instead of being evaluated on your entire past performance on debt, you may have the opportunity to be evaluated on your current income and financial abilities alone. However, these lenders still know you have few options, so they will charge you high interest rates. High risk lenders apply the same idea: if your current income can support the loan, you will be likely to achieve the financing from a high risk lender. However, be prepared to pay a lot more for the option than you would with a traditional bank.

Perfecting your Application

Traditional lenders use your debt history as the main indicator of how you will perform on this new loan. While income is considered on traditional loans, credit score is a leading factor. For alternative loans, however, you will need to focus more on your current ability to pay than on your past debt performance. This bodes well for post-bankruptcy borrowing. Verify your income, either through bank account verification or employer-provided verification. Next, you will need to show you have overcome the circumstances that lead to your bankruptcy in the first place. This can be done in a number of ways, including showing the bankruptcy obligations were settled in court and are no longer a burden. You may also consider providing a statement regarding why the bankruptcy occurred. This is especially helpful if you had financial difficulty following a fiscal emergency, such as unemployment or a medical leave.

Assuring Against Default

Finally, you will need to offer your alternative lender some assurance you will not default. It is possible to secure the loan with additional collateral, but this means you will have to assume a greater risk in the loan. Instead, consider providing a very large down payment. Then, opt for high monthly payments. This will reduce your interest rate slightly and encourage the lender to extend your financing. Of course, this is only an option if you can afford the expense. If you can, though, then you will see your credit score appreciate very quickly as a result of the high risk loan. Paying off the loan fast without using a lot of collateral or a cosigner will rapidly build your credit score.


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