Can I get a car loan after chapter 7 bankruptcy?
For many people that file bankruptcy, one of their most valuable assets is their car. Not just because of the cost and value of a car, but also because it’s how they get around, get to work, get their children to daycare or school. Some people have been unable to get a car because of their debts. If you’re thinking about filing for chapter 7 bankruptcy, then you may be asking the question – can I get a car loan after chapter 7 bankruptcy?
While bankruptcy can have a significant impact on your credit score, it is still possible to secure a car loan and purchase a vehicle after a bankruptcy filing. As a matter of fact, there are auto lenders that specialize in securing an auto loan for people coming out of bankruptcy proceedings. In this article, we will look at how bankruptcy may impact your credit, and look at some things you may want to consider when looking at a bankruptcy car loan for this major purchase.
Understanding Your Financial Situation After Bankruptcy
Before looking more closely at the impact of bankruptcy in potentially getting a car loan, it might be helpful to look at financing in general to see how different factors affect your chances of loan approval. Whenever you apply for financing, creditors will often look at different data sources to try and estimate what kind of risk you are to lend money to. One of the fastest and simplest ways to gauge this is a credit check. Poor credit often indicates trouble with making loan payments or payments on time, whereas excellent credit indicates paying bills on time and likely sufficient income to cover debts.
Other sources of data lenders may consider including any loan balance you may have at the time of applying, total unsecured debt you have, whether you have stable income, your monthly income, your household size, and more.
After considering your financial history, a lender will make a decision whether they want to loan you the money you are requesting. Some lenders have a minimum credit score they require, while other lenders may be flexible on credit score but have other eligibility requirements. Denial of the loan is one option. If, however, the lender is willing to extend financing, then the loan rates are what will impact the monthly payment the most. Bad credit is usually tied to higher interest rates, and, as a result, higher cost for the loan.
The Impact of Chapter 7 Bankruptcy on Your Credit Score
Filing for Chapter 7 bankruptcy may have a significant impact on your credit score. This can make it more challenging to secure a car loan, as lenders may view you as a high-risk borrower. Oddly enough, many clients have shared that their credit score went up in the weeks after filing bankruptcy while the case was still open and active. My theory (just my thinking, I don’t have any facts or research to support this) is that because the bankruptcy is reported to one or more major credit bureau, creditors see that as adjusting your debt load. Since post – bankruptcy your debt load is decreased (and starting from zero), creditors see this as being able to take on new debt.
Rebuilding Your Credit Score
One of the most important steps you can take after filing for bankruptcy is to begin rebuilding your credit score. When people ask me if they can rebuild credit after bankruptcy, my response is always the same: credit is a function of income. If you have income, then you can obtain credit, use it, and then pay it off. The greater your income, the more debt you could incur. A car loan after bankruptcy can help to rebuild your credit score, provided that you make on time payments.
Budgeting for a Car Purchase
Before you begin shopping for a car, it is important to take a close look at your finances and determine how much you can afford to spend. Knowing what you can afford each month helps when considering auto loan options, and not rush into a loan on a whim. This may involve creating a budget that includes all income and expenses, as well as the timing of any bills you have, and costs associated with the vehicle, including car insurance as well as fuel and maintenance.
Finding the Right Lender and Dealership
Researching Lenders and Dealerships
When it comes to securing a car loan after bankruptcy, it is important to do your research and find a lender and dealership that are willing to work with you. This may involve looking for lenders that specialize in working with borrowers who have filed for bankruptcy, as well as researching dealerships that offer financing options for those with less-than-perfect credit. A loan interest rate that differs by just a few percentage points, as well as any additional fees charged, can often add up to hundreds or even thousands of dollars more for the same principal loan amount.
Choosing a Reputable Lender and Dealership
Often when it comes to post-bankruptcy auto loans, people jump to the idea of subprime lender, which often has a negative connotation. A subprime lender refers to a lending institution that is willing to lend to riskier borrowers, and often charge higher interest, more fees, and tougher loan terms.
Once you have identified potential lenders and dealerships, you should choose a reputable partner who is clear about the kind of loan your getting into, what the repayment plan looks like, and whether there will be application fees and other costs involved in financing.
As a rule of thumb, look for lenders and dealerships that have positive reviews and a history of working with borrowers on loans after bankruptcy. You may also want to consider working with a credit union, which may offer more favorable loan terms than traditional banks.
Negotiating the Best Deal
When it comes to purchasing a car, there are many factors which impact the price of the car, so it is important to negotiate the best deal possible. One strategy is to make use of online dealership websites to get a sense of what a particular vehicle is being sold for in your area. Increasingly, dealers are offering “the price you see is the price you pay,” and when armed with this knowledge, it can help you spot a bad deal from a good deal, as well as a good deal from a great deal.
Another strategy may involve negotiating the price of the car. As mentioned previously, many different factors impact the price of a vehicle in a given area. If you know that another dealer has the same car in a different color for a better price, that info may help you to negotiate a better deal.
Finally, it would be worthwhile to make use of an auto loan calculator. Many online lenders and dealers have some kind of loan calculator, where you can play out different scenarios by adjusting different factors, including auto loan rates, downpayment, and loan term. Most importantly, be sure to read and understand the terms and conditions, as well as any disclaimers of any loan before agreeing to proceed.
Securing a Car Loan After Bankruptcy
Preparing for the Loan Application Process
Before submitting any auto loan application, it is important to gather any necessary documentation and information. This may include your case number and bankruptcy discharge info, proof of income, and proof of insurance. It may also help to be aware of any post-bankruptcy credit card balances, as paying these off may help to improve your credit utilization ratio, and possibly get a more affordable interest rate. Understanding Loan Terms and Interest Rates
Applying for a Car Loan
Once you have gathered all of the necessary documentation and information, you can begin the loan application process. Be sure to shop around and compare loan offers from multiple lenders before making a decision. Don’t get confused by the marketing labels you come across. A predatory lender may market themselves as offering credit-builder loans, when in fact they are bad credit auto loans stuffed with fees, exorbitant late payments, and other stringent terms.
Choosing the Right Car
Identifying Your Needs and Wants
When you see a pickup truck, you may think to yourself, “wow, I sure could carry a lot of stuff in that truck bed,” but in reality, how often will you need all that space in a pickup truck? Many people buy vehicles with more space than they need, with more power than they need, and more gas-guzzling than they can afford because they think of these once in a while scenarios when buying a car. Before you begin shopping for a car, it is important to identify your needs and wants. When you really sit and think about your needs for a car, you may find a smaller and more economical car will get the job done, which will make the vehicle purchase and any related auto financing that much easier on you moving forward. This may involve considering factors such as your budget, the size of your family, and your daily commute.
Rebuilding Credit After Bankruptcy
Making Timely Payments on Your Car Loan
No matter the type of bankruptcy filed, almost everyone I have worked with that has filed bankruptcy asks about rebuilding credit. To rebuild credit, you have to use credit. One of the most important steps you can take to rebuild your credit after bankruptcy is to make timely payments on all your current debts, including your car loan. This can help demonstrate to lenders that you are a responsible borrower and can help improve your credit score over time.
Using Secured Credit Cards to Rebuild Credit
In addition to making timely payments on your car loan, you may also want to consider using secured credit cards to rebuild your credit. Secured credit cards require a cash deposit to use, but can help you establish a positive credit history over time as well as control expenses.
Monitoring Your Credit Score
Finally, it is important to monitor your credit score regularly and take steps to address any issues or errors that may arise. While creditors are allowed to report a discharged debt with some notation of bankruptcy, it is improper for a discharged debt to be reported as being in default. If you notice an account being improperly reported on your credit report, it’s important to report it to the respective credit bureau and dispute the account.
Conclusion: Driving Towards a Better Financial Future
Purchasing a car after chapter 7 bankruptcy can be challenging, but it is not impossible. By carefully planning and budgeting, working with reputable lenders and dealerships, and taking steps to rebuild your credit, you can take control of your financial future and drive towards a better tomorrow.
If you are struggling with debt and making ends meet month to month is challenging, then filing for bankruptcy may be for you. The type of bankruptcy you file will depend on many different factors. Additionally, if one of your major concerns to be able to get a car loan after filing chapter 7, then it is important to discuss these questions and more with a bankruptcy attorney as early as you can in the process. If you would like to discuss how a chapter 7 bankruptcy may help you drive towards a financial fresh start, contact the Law Office of Richard Kistnen today at (718) 738-2324, or click here to book your confidential, no obligation bankruptcy consultation right now.