What Kind Of Auto Loan Terms Can I Expect After Bankruptcy

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January 27, 2012

The auto loan terms for a new car purchase when you have a discharged bankruptcy will be different than if you had great credit. Though, this shouldn't deter you from looking for a car. There are a few things you need to know about the terms to expect with this kind of loan. We will explore them below:

Higher Interest Rates

The interest rates on a car loan with a bankruptcy will be at least 8 percentage points higher than a standard car rate. While someone with perfect credit can finance a car for 5-8%, having a bankruptcy on your credit report can increase that rate to anywhere from 15-20%. This will mean your monthly payments will be quite a bit higher. But as long as you make your payments on time after about a year you can look in to refinancing options to bring down the interest rate.

Life of Loan

With a bankruptcy on your credit file you can expect to get shorter term loans. If you can only afford a car by financing it out for six years, then your options will be very limited. Most lenders will only offer loans for as long as three years with a bankruptcy on file. This means if you choose a car that is $15,000 at a rate of 15% for three years your payments will be over $500 a month. Keep this in mind when you are looking for a new car. Your best option will be to get a cheaper car that you can afford over a shorter period of time. You can lower your payments drastically if you stick to cars that are selling for $10,000 or under. Before you start looking at cars, come up with a budget. This will help you find a car that will be affordable and won't get you in any more trouble later down the road.

Additional Terms

If you have a bankruptcy on file you may need to look at second chance lenders for financing. Many dealerships exist who specialize in this type of financing. With these lenders they will probably want to set up a payment schedule that coincides with your paydays. Instead of paying your car once a month, you may have to pay every two weeks, or weekly depending on how often you receive your pay. This can be helpful for a lot of people since it will seem to take the burden out of coming up with a larger amount of money just once a month.

Down Payment

Your down payments will likely be higher as well with a bankruptcy on file. This protects the lender and will give you more of an incentive to stay current on your loan. It can also help lower your monthly payments. Expect to shell out at least 20% of the total sticker price of the car for your down payment. So a $10,000 vehicle may end up requiring $2000 down. This amount won't go in to the overall financed amount, so it will lower your payment and lower the overall amount of interest you pay as well.

Knowing these auto term loans should get you moving forward after having declared bankruptcy. Exploring all of your possibilities will save a lot of time in finding a loan that can work with your situation.

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