In most cases, getting a bad credit car loan isn’t impossible, even after bankruptcy. It all depends on how a borrower’s bankruptcy ended – discharged or dismissed.
Discharged Bankruptcy
Hardships like bad credit usually make getting auto financing more difficult. But, if that bad credit led to bankruptcy, those difficulties can dissolve in the hands of the right lender – assuming the bankruptcy was discharged. A discharge means the borrower successfully completed their bankruptcy and now has a “clean slate” as far as debt goes.
Even though there’s no current debt after a discharge, bankruptcy still takes a toll on a borrower’s credit. It drops a borrower’s credit score and, depending on the type of bankruptcy (Chapter 7 or Chapter 13), stays on credit reports for seven or 10 years. Fortunately, working with the right lender can overcome these difficulties. These lenders, known as subprime lenders, only work indirectly through special finance dealers, so it’s important for a consumer to visit the right dealership after a bankruptcy.
Dismissed Bankruptcy
A dismissal means that a potential borrower didn’t complete the bankruptcy. If their bankruptcy is dismissed, rather than discharged, it’s unlikely they’ll be able to finance anywhere. There are a number of reasons a person may find their bankruptcy dismissed, ranging from intentional fraud to simple filing errors.
According to legal website Nolo.com, some of the most common reasons for a dismissed bankruptcy are:
- Committing bankruptcy fraud
- Failing the means test (Chapter 7)
- Failure to complete credit counseling before bankruptcy
- Non-payment of court filing fees
- Incomplete or unfiled forms and/or support documents
- Failing to attend the meeting of creditors
- Not following through on a repayment plan (Chapter 13)
No matter what the circumstances are, most lenders won’t approve a borrower after a dismissal. The risk of approving someone who wasn’t able to complete their bankruptcy is too great even for subprime lenders. If someone wasn’t able to successfully complete their bankruptcy, what are the chances of them successfully completing an auto loan?
Picking up the Pieces
Chances are it’ll be a long time before a potential borrower with a bankruptcy dismissal is able to find financing from a subprime lender. If they can’t wait it out, the best bet may be to visit a buy here pay here dealer.
These dealers don’t rely on credit scores or outside lenders to approve borrowers. Known as dealerships with “in-house financing,” they typically only require proof of income to get a borrower into a vehicle.
Keep in mind these vehicles are likely to be older, high-mileage cars that come with a high interest rate and require a down payment. This situation may not be ideal, but it may prove to be the only option for a borrower with a dismissed bankruptcy who needs a car now.
Putting Your Credit Back Together
Once you’ve gotten to the point where your credit is rising, it’ll eventually be time to try again for auto financing. When that time comes, don’t go it alone. CarsDirect wants to help you find the right dealer that has the subprime lending resources to help.
We work with dealers all across the nation, and we want to help you alleviate the stress of going from dealer to dealer finding one with the right lenders. Let us guide you toward a local special finance dealer that can get you a lender who works with bad credit. Simply fill out our no-obligation online auto loan request form to get started.
