Rebuilding Credit after a Discharged Bankruptcy: How Bad Credit Auto Loans Can Help

Get Car Financing
Even with poor credit.

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - January 16, 2019

With a lower credit score after bankruptcy, you may wonder if it's possible to get an auto loan. It's not only possible, but it's a great time to work on rebuilding your credit, as well.

How an Auto Loan Raises Your Credit

The process of rebuilding your credit with an auto loan after bankruptcy is simple – each on-time payment you make on it helps build your payment history. Payment history is the largest factor in determining your credit score, making up 35 percent. By maintaining a solid payment history and avoiding late and missed payments after your bankruptcy, you should see your credit rise over time.

In addition to timely payments improving your credit over time, a car loan adds a line of credit – specifically installment credit – to your credit mix. Ten percent of your credit score is determined by new credit. Also, your credit mix, which is made up of installment loans like auto financing and mortgages, and revolving credit like credit cards, makes up an additional 10 percent of your credit score.

Because you're basically starting over, free of existing debts after a bankruptcy, it's a perfect time to focus on financial responsibility, which also helps build good credit. Being responsible by not opening multiple new credit cards at once helps you keep your account balances under control. A good tip is to only open new lines of credit if necessary, and only charge things to your credit card that you have the cash to pay for. This way, you can pay your balance off in full each month and avoid adding interest.

Getting the Right Lender

After bankruptcy, your credit score can drop anywhere from 100 to 250 points, depending on what it was to start with. Not all lenders work with people who have low credit scores, or with people who've completed a bankruptcy. For that reason, you need to make sure you're going to the right dealership to get the financing you need.

Special finance dealers use subprime lenders that can work with these types of situations. These lenders only work through special finance dealerships because they're indirect lenders, so you can't apply with one directly to get financing.

Lender Requirements

Subprime lenders look beyond your credit score to approve you for an auto loan based on other factors such as income, employment, and residency.

In order to balance the increased risk of working with borrowers with a past bankruptcy, these lenders ask that you meet certain requirements in order to qualify for a car loan. These requirements vary by lender, but typically include:

  • Proof of income – You must make a minimum of $1,500 to $2,000 a month, before taxes, from a single job. You provide proof with your most recent computer-generated paystub.
  • Time on the job – You're required to have held your current job for at least six months, along with three years of work history with no large gaps in employment.
  • Proof of identity – A valid driver's license works.
  • Proof of residency – Bring in a current utility bill in your name, at the address listed on your loan application. Pro tip: make sure the bill you're using isn't showing a past due amount.
  • A working phone – Lenders have an adage: "no phone, no loan." This means you need a working landline or contract cell phone in your name. Prepaid phones don't cut it.
  • Personal references – Lenders typically like you to list six to eight personal references complete with names, addresses, and home and work phone numbers. None can be living at your address.

These requirements cover the basic items you need to bring with you. Some lenders may ask for more, or less, so be sure to find out before you visit a dealer.

Another thing to note is that you're required to make a down payment. Generally, subprime lenders ask for $1,000 down or 10 percent of the vehicle’s selling price, whichever is less. Also, you may be asked to provide a cosigner, depending on your credit.

Make Car Shopping Hassle Free

If you don't know where to turn to find a subprime lender after your bankruptcy is discharged, let CarsDirect help. We work with a nationwide network of special finance dealerships that have the lending resources available to help people who've come through a bankruptcy. Don't stress out driving from dealer to dealer, simply fill out our no-obligation, free car loan request form to get the process of finding a local dealership started right now!

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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