Auto Financing After Bankruptcy Discharge

Bankruptcy doesn't mean you'll never drive again.
i Barry Austin Photography/Photodisc/Getty Images

If your bills got so out of hand that you had to file for bankruptcy, you might think you'll never again be able to enjoy the things you used to buy when your credit was good. However, this isn't necessarily true. Bankruptcy is definitely an ugly blemish on your credit history, but it shouldn't stop you from financing a car.

The Bright Side

The good news is that you're probably a better credit risk post-discharge than you were before you filed for bankruptcy. Lenders know that you can't discharge your debts in bankruptcy a second time for eight more years -- longer than the length of most car loans. You also eliminated most, if not all, of your debt when your bankruptcy was discharged. This works to your advantage, so lenders may not summarily turn you down for an auto loan.


If lenders do decide to take a chance on you, expect to pay more in interest. Auto lenders want something in exchange for the chance they're taking on you, so they hike their interest rates on subprime loans -- those extended to consumers with imperfect credit. You'll be excluded from those dealer advertisements you hear on the radio, guaranteeing financing at 2 percent interest. More likely, you'll pay in the neighborhood of 13 percent or even more, which can seriously add up over the life of the loan.

Your Financial Troubles

Another factor affecting your ability to qualify for an auto loan post-discharge is the nature of the financial troubles that led you to file for bankruptcy. Lenders look at all your credit accounts leading up to the time you filed. The accounts stay on your credit report, even after discharge. Your bankruptcy appears in addition to them. If you had a history of late payments before you filed, this will work against you more than if a one-time crisis occurred, such as job loss or a sudden onslaught of medical bills.


The more time that passes after your discharge, the more likely it is that you'll qualify for auto financing. Older discharges don't weigh as heavily as recent ones. If you repair your credit a little in the meantime, such as by making regular payments on a credit card, this will help even more.

Your Down Payment

The amount of your down payment matters. The more you put down on a car, the less money the lender has to advance you, and the less of a risk you become. This not only makes you more likely to qualify, but it may lower your interest rate a little as well.

Dealer Financing

A list-ditch option is to get financing directly from the dealer, or through the dealer. Some dealers will finance your car themselves, but these loans typically apply to used cars and dealers don't usually report your prompt payments to the credit bureaus. Such a loan won't do much to help repair your credit. Dealers also have access to manufacturer financing. Manufacturers are usually more willing to take a chance on you than banks. After all, they're in business to sell cars.


Whichever option you choose, you're probably not on the hook for high interest rates for the entire life of your loan. Assuming you make your payments on time, you can refinance your auto loan after a couple of years, bringing the interest rate down to something more manageable.

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