Can You Get a Car Loan After Bankruptcy?

Finding a car loan after bankruptcy is difficult because lenders will be afraid you will default on the new loan. If you can show a lender there is a low risk of that default occurring, then you are more likely to locate a car loan. There are many methods to assure a lender against risk including using a cosigner, placing additional collateral, issuing a large down payment, providing character statements and proving proof of a high income.

Use a Cosigner

You should only use a cosigner if you cannot find a loan without one. Using a cosigner will allow you to borrow another person's credit score for your loan, but this also means you will be splitting any potential credit rewards with your cosigner. You want to use this car loan as a stepping stone for recovering from bankruptcy. It is a key chance to show future lenders you can handle a loan, and using a cosigner does not allow you to achieve this step in the rebuilding process.

Collateralize Assets

Most car loans use the car itself as collateral. However, you may opt to place additional assets in order to secure the loan. Again, this should only be done if you cannot get the loan through another method. When you collateralize an asset, you remove it from your asset list. This means your debt to asset ratio will suffer, and your credit score may dip lower as a result.

Place a Large Down Payment

A big down payment will reduce the size of your total loan. Further, placing a large down payment acts as a sign of good will toward your lender. If you have a large amount of cash to place down in order to source your new car loan, you will find lenders are much more willing to work with you. You may also offer to make larger monthly payments than average in order to show you have the funds at this point to afford the loan.

Provide Character Statements

Character statements are more than just references from friends or other lenders. These statements should be used to show why your bankruptcy occurred and prove you are no longer at risk for default. For example, if you went bankrupt during a divorce or after a medical emergency, you can use these statements to show you have since overcome that issue. Showing you no longer have financial problems should be the primary goal of these statements.

Issue Proof of Income

Your employer may be able to issue proof of income on your behalf. If not, a pay check stub is generally acceptable in assuring your new lender you make a stable income. It is best if you can show you have been consistently employed with the same company for at least two years. In those two years, raises or promotions are key to showing you have good job stability. Individuals, who are self-employed, despite high incomes, may have a hard time locating a loan. Verifying consistent pay is more important to a lender than finding high, infrequent earnings.

How soon after bankruptcy can you get a car loan?

You can get a car loan immediately after bankruptcy, but that is not to say you should take this step. There are certain "high risk" lenders willing to extend financing within a short time after a financial emergency. These lenders extend very unfavorable financing terms, and you will end up paying far too much in financing fees to make these options financially viable. It is best to wait at least two years prior to attempting to secure a new car loan. Your bankruptcy will disappear completely from your record in 10 to 15 years, depending on your state, and this is the time when your bankruptcy will no longer affect your loan terms.

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