Getting Car Loans after Bankruptcy

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Automotive Editor

Armaan Almeida is the Editor-in-Chief of the New Car Pricing Insider blog and publishes daily incentives on new cars in addition to newsworthy articles pertaining to the auto industry.

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, Automotive Editor - November 7, 2013

Getting car loans after bankruptcy is often thought to be impossible. However, that assumption is incorrect. You can still obtain a car loan if you've filed for bankruptcy. In this article, we will detail how to go about doing so.

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There are two types of personal bankruptcy-Chapter 13 and Chapter 7. In Chapter 13 a trustee is appointed by the court. He or she sets a payment schedule which must be followed for the length of the bankruptcy, which is usually three to five years. Chapter 7 liquidates a debtor's assets and gives out the money to the secured debtors.

Chapter 7 bankruptcy includes a procedure called a 341 meeting. It is in this meeting that the court appointed trustee affirms the value of your assets and confirms the information contained in the schedule of debts. Getting the 341 meeting over with is essential for getting a car loan. Lenders will not even consider giving you a loan if this meeting has not taken place.

In a Chapter 13 bankruptcy, the court appointed trustee has the control, so if you want to apply for a car loan you need to get the permission of the trustee. It is said that it can take as long as a month to get a letter permitting you to purchase a car.

How to Find a Lender for Bankruptcy Car Loans

Once these procedures are done, you can start shopping for a lender. At this point you need to identify lenders who are willing to make car loans to an individual in bankruptcy. There are a number of banks and lenders who will do this and who are well versed in bankruptcy procedures. You can find these lenders through a search on the Internet. A great site to try is CarsDirect. They have a lot of experience in helping people with a recent bankruptcy obtain reasonable financing on a new or used car.

Find out if you qualify for an auto loan >>

If you have just gone through a bankruptcy and are looking to purchase a new or used car, then an auto loan broker can prove to be invaluable. Loan brokers have a lot of experience in helping people with all sorts of credit problems, including bankruptcies. Furthermore, they have access to multiple lenders that specialize in providing financing to persons with bankruptcies.

If you take your time, do a little research and ask around, finding a loan for a new or used car shouldn't be too much of a problem - even with a prior bankruptcy. It just takes a little time and effort.

Select at least three lenders who you can negotiate with. Get information on the loans from each lender and then compare for the best rates and terms. You can use the Internet for gathering this information, but experts say it is best to meet face-to-face with potential lenders. This will give you the opportunity to discuss the reasons why you had to file for bankruptcy. It is also best to negotiate a contract in face-to-face meetings. It's okay to select an online lender who specializes in bankruptcy loans. Just be certain that you check them out first.

CarsDirect Finance Services
If you're seeking car loans to pay for a car, you may consider getting a loan through CarsDirect. We help more credit-challenged consumers than other website in the country. We work with a network of dealers who specialize in this area of financing. The dealer has access to a number of financial institutions and will shop around to find you the best deal. Simply fill out a quick and easy application, and you'll be on your way to getting your new car and avoiding having to deal with car title loans. The service is free and absolutely no obligation is required.

As you get information from the various lenders keep in mind that you will be somewhat penalized for being in bankruptcy. For example, you will be expected to pay a higher interest rate. However, you might be able to get a decent interest rate that compares well with non-bankrupt consumers, but you will be called upon to make a high down payment.

After you have held the meetings and gathered and compared the information from the three lenders, go ahead and select the one that appears to offer the best deal. Fill out an application with the lender you have chosen and then you will have to wait for approval. Once you have approval and the terms of the loan in hand, go car shopping (Refer to articles on how to buy a car).

Select a car that fits within the requirements of the loan and buy it. Then be certain to pass all the appropriate information about the purchase to the lender. Finally, concentrate on re-building your credit. When your credit is good you will have more options to consider in your search for a car loan.

Finding a Car Loan after a Bankruptcy Has Been Discharged

Obtaining a bank car loan after a bankruptcy has been discharged is possible. Today banks see these situations more and more often with the recession and unemployment rates being so high. Ten years ago it may have been hard to find a bank auto loan after bankruptcy, but today it's much easier. Here's what you need to know.

Compare Rates Online
One of the easiest ways to find a bank car loan even with a discharged bankruptcy on your record is to go online. You can find a wealth of information on the Internet. There are many sites devoted to mass submission of your information too. These sites are great because you fill in your information one time and the site will submit the information to many different banks. This allows the banks to compete directly with each other for your business, and you never have to leave the comfort of your home. It also saves you valuable time since you won't have to make a lot of phone calls or visit local banks in person. Even with a bankruptcy you should be able to use these sites to find competitive rates.

Expect Higher Rates
With a bankruptcy on your credit report you become a much higher risk to the banks who loan for new cars. This is really a small price to pay though considering you have already filed for bankruptcy. The rates you pay with a bankruptcy run anywhere from 15-20%, which is higher than the average car loan rate. Banks will offer lower rates - even for bankruptcies - if they have a relationship with you already. The rates will still be higher, but going through a bank you have established yourself with, can save you a few points. Over the course of the loan, this can translate into several hundreds of dollars in savings.

See what kind of interest rates you can get >>

Be Realistic in Your Car Choice
A bank is not going to offer you a loan for an $80,000 vehicle after a bankruptcy. In fact, you are looking at getting financed for amounts under $15,000. You may not be able to get that souped up SUV you were hoping for, but $15,000 will get you a reliable car that will serve its intended purpose. After a few years you can look at trading in the basic car for something closer to what you were hoping for. But for now, understand that unless your dream car is a sub-compact, you will likely have to settle for your second or third choice.

Check out our Budget Car Buying Guide >>

Expect to Put More Down
The more money you have to put down on your car, the higher the chances are of getting a bank loan even with a bankruptcy. This shows the bank that you are serious about your investment. The higher the down payment you make, the more you have invested in it. The bank sees this as a positive since you are probably not going to want to just throw that initial investment away. Whatever car you choose plan on putting at least 20% down, more if you can afford it.

Having a bankruptcy on your credit record isn't the worst thing in the world. Things happen. Lenders understand this and are willing to give you another chance. As long as you understand what to expect you will have no problem finding a car loan after filing for bankruptcy.

Post Bankruptcy Car Loans: How Long Should I Wait?

Your best option may be to get a cheaper vehicle that you can pay for in cash. If you wait until your bankruptcy is discharged, you can then rebuild your credit for a few years with small amounts of credit with other sources. Doing this should allow you to get a car loan for a reasonable interest rate within 2-3 years of your bankruptcy being discharged. Of course, that is not a realistic option for some people who may opt to go with a high risk lender, and pay the higher fees, in order to have a newer and more reliable vehicle with a warranty.

Many people are going the route of the high risk loans soon after their bankruptcies are discharged. While there are higher interest rates involved, there is a positive aspect above having a newer car with a warranty. High rate loans can also work in your favor to help you rebuild your credit. For instance, if you purchase a car well below your means and make double payments on the loan, you will find that not only do you cut a lot of that interest out, but you also improve your credit rating at the same time. Even high risk lenders will report your credit like any other lender. A good word from them will do wonders for your credit. Of course, research is key. Make sure to find out as much as you can about the local high risk car lots and their lenders to make sure you don't end up with a lender that you later regret.

The riskiest option available is in-house financing. In-house lenders make their money by selling the dealer's vehicles with a higher profit margin, and often for much higher than you can find similar cars for sale in the classifieds. Usually, the dealer has very little investment in the car, and sometimes the down payment you would put down covers that. Since many of these cars are cheaper or older, you can end up with a car that becomes a major headache soon after purchase. Make sure to do your homework about the car you are buying and the dealer from whom you purchase.

Getting A Car Loan 7 Years After Bankruptcy

While a bankruptcy stays on your credit history for a minimum of 7years and as many as 10 years, generally car loan lenders are interested primarily in your past 2 years of credit history. Even if you have a bankruptcy in your credit history, once 2 years have passed since the discharge many lenders are very willing to entertain the possibility of offering a car loan. The provision is that during the immediate 2 years before the application, a borrower must have reasonably good credit history with a minimum of late or missed payments.

Some car loan applications ask if you have ever declared bankruptcy in the past. Answer this question honestly and enclose copies of your bankruptcy discharge with your application. Your discharge papers should delineate all of the debts addressed by your bankruptcy.

Get Your Credit Report
One way to determine if your bankruptcy and all of the debts included in your bankruptcy have been removed from your credit report is to order a copy of your credit report yourself. Every person in the United States is entitled to an annual free credit report from all of the credit reporting agencies. You can also receive a free copy of your credit report if you have been refused a job or credit because of information on your credit report.

When you receive your copy, carefully review all of the information on it. You should compare the report with your bankruptcy discharge papers to ensure that all of those debts were removed. It is not unusual for creditors to attempt to continue reporting debts inaccurately even if those debts were included in the discharge.

Find out if you qualify for an auto loan >>

Also take this opportunity to review all of the information on your credit report. Almost all credit reports have at least 1 or more errors on them. Erroneous information can result in a lowered credit score, so it is important to be diligent about correcting any errors or incorrectly reported information.

Other Loan Requirements
Other than your recent credit history, lenders also ask for verification that you are able to afford the car based on employment and income. Usually, lenders will ask for a copy of your current pay stub to verify income. Also, they usually prefer that you have been employed at your current job for at least a year. However, if you have a solid employment history and have only recently started your current job, then showing your pay stub is usually adequate.

Another requirement that many lenders have is that you be able to demonstrate residential stability. This can be by showing that you have been in your current residence for at least 6 to 12 months or by showing a stable residency history if you have recently moved.

In most cases, a bankruptcy is removed from your credit history within 7 to 10 years. If you have had a bankruptcy and have had good credit for the 2 years before applying for a car loan, then getting an auto loan should be a relatively easy process, provided you meet all of the other application requirements for employment, income and residency.

How Filing for Bankruptcy Will Affect Your Outstanding Car Loan

Here are a few things you need to know if you are filing bankruptcy now, or have filed in the past, when it comes to your car loan.

What If I Have an Existing Loan and Need to File?
There may be a few ways for you to keep your car even if you are facing having to file for bankruptcy.

If you purchased the car within 30 months of filing, you are required under Chapter 13 rules to pay back the entire amount of the loan. So bankruptcy will not wash the loan out of the picture.

In Chapter 7 you must pay the lender the retail replacement amount of the car's value. So there may be a difference between the two figures when you are looking at bankruptcy.

If you don't want to keep the car, you can always surrender the car back to the dealer. However, you may still end up on the hook for any lost value the car has had since you've had it.

Before you file with an existing loan you want to consult either a debt relief agency or a lawyer to understand your options and how much you will end up paying.

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, Automotive Editor

Armaan Almeida is the Editor-in-Chief of the New Car Pricing Insider blog and publishes daily incentives on new cars in addition to newsworthy articles pertaining to the auto industry.

Follow On: Google+ | Website

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