It is entirely possible to get an auto loan after a bankruptcy, but you will have to meet certain requirements set forth by a lender. There are also a few things that you can do to help your chances of getting approved. And one way is to get a cosigner with great credit to sign the loan with you.
Post-Bankruptcy Auto Loans
A bankruptcy has a long-lasting effect on your credit. A Ch.7 bankruptcy can stay on your credit report for up to 10 years from the date of filing, while a Ch. 13 bankruptcy can remain for up to seven.
However, it's still possible to get approved for an auto loan. That is, as long as you are working with the right lender. In most cases, you need to work with a subprime lender, and their services are usually only available through special finance dealerships that they have a working relationship with.
However, having a bankruptcy on your credit report isn't ideal, so there's no guarantee that you will be automatically approved even when working with the right connections.
Sometimes, you have to do what you can to show them that there's less risk in approving you for a car loan. There are a number of methods that can help you get approved, and one of them is using a cosigner.
An Auto Loan After Bankruptcy with a Cosigner
Using a cosigner is a great way to show lenders that there is less risk in approving you. A cosigner is a person who signs the loan agreement with you, and, when it comes to subprime car loans, they need to have good to excellent credit. Basically, you will use their good credit to improve your approval chances.
However, in doing this, the cosigner assumes all of the responsibilities that come with the loan. That means they are responsible for any payments if you can't make them, and they are even subject to collection action should the worst occur. Also, the loan will show up on their credit reports and any late payments or negative activity will affect their credit.
Therefore, because they are putting their finances and credit on the line, it is important that you understand what they are doing to help you out. This is also the reason why it's best to only use a family member or a very close friend as a cosigner.
But, ultimately, a cosigner gives the lender assurance that you are less of a risk. In an ideal world, you would use a cosigner to help you get approved, and then use the auto loan to help your credit rebuilding efforts so you can recover from the effects of the bankruptcy.
Other Ways to Help Your Approval Chances
Don't have anybody that would work as a cosigner? There are other ways that you can help your approval chances for a post-bankruptcy auto loan.
- Provide a Large Down Payment - A large down payment results in a reduced loan amount, which means the lender is taking less of a risk when approving you. Money down is seen as an initial investment in your purchase. Lenders are more at ease because having skin in the game makes it less likely that you are going to miss payments or default and waste that initial investment.
- Choosing a Reasonable Vehicle - Most lenders are not going to want to offer you a $60,000 loan after a bankruptcy. Instead, you can help yourself out by focusing on more affordable options. Choose an affordable vehicle and let the car serve its purpose while you work on rebuilding your credit. Then, the next time you're in the market for a car you will be in a much better position to buy the vehicle you truly want, credit-wise.
- Get Connected to the Right Dealership - The right dealership is one that can help you get approved and one that uses lenders that report your loan and payments to the credit bureaus so you can rebuild your credit with every timely payment.
If you are having trouble finding the right dealership, CarsDirect can help. Our national network of dealers uses lenders that believe in second chances for people who have been through a bankruptcy. Get the approval process started today by filling out our easy 1-Step Auto Loan Application.