Many regard bankruptcy as a failure that could change their life forever, but, in the United States, bankruptcy is intended to give people who’ve found themselves overwhelmed by debt, often due to circumstances beyond their control, a way to financially begin again. Although your attorney is best qualified to counsel you through the bankruptcy, a financial counselor will tell you that you must repair your financial health by re-establishing good credit. One way to do that is to get an auto loan.
The day after your bankruptcy has been discharged, you may begin receiving offers for car loans and secured credit cards. These folks are not doing this out of the goodness of their hearts: they get lists of bankruptcy filings and reach out as soon as filers leave court, their credit ratings in ruins. Loans come at a premium interest rate, though, so shop around if possible. In addition to higher rates, post-bankruptcy creditors typically offer only secured credit with collateral they may seize if you fail to pay. Some offers are worth considering -- you have to start somewhere to repair your credit.
Car loans are secured with property -- your car -- and payments spread over several years -- long enough to do your credit position real benefit. A purchase of a “sensible,” modest car is a good investment for a financial institution; it demonstrates your ability to plan conservatively and represents a potential for a higher return than do loans to more credit-worthy patrons. To add to the good vibes of your loan performance, check the agreement to make sure there’s no penalty for early payments, so you can make greater-than-standard payments when possible.
Choosing a Lender
Bankruptcy typically will not take the clothes off your back, the roof from over your head or wheels used to make a living. Just because you’ve gone through bankruptcy doesn’t mean you have to suffer a usurious interest rate. Shop for a loan after bankruptcy as you would any other time. An established relationship with your community bank provides a solid option; many local banks willingly make -- and service -- secured loans to customers who’ve gone through bankruptcy. Find an offering that will stay “in house” during its term, so you’ll be able to negotiate changes if needed -- large banks and online providers may bundle your loan with others and sell it to distant secondary creditors. You also may improve your chances of getting a loan and a decent interest rate by saving up enough money to make a large down payment.
When applying for a car loan, be honest about your bankruptcy. Accept responsibility for your bankruptcy by explaining briefly its cause; illness, unemployment or education loans are common, "respectable” reasons for bankruptcy. Your lender wants to know that you have tried to make good on as many debts as you could before declaring bankruptcy and had to accept it as your only alternative, not an easy out. Providing you’ve got an income that allows you to handle payments, you may even find it easier to find a car loan due to your lower debt load after your bankruptcy discharges old accounts.
An avid perennial gardener and old house owner, Laura Reynolds has had careers in teaching and juvenile justice. A retired municipal judgem Reynolds holds a degree in communications from Northern Illinois University. Her six children and stepchildren served as subjects of editorials during her tenure as a local newspaper editor.