Having a bankruptcy on your credit report won’t prevent you from getting a car loan. In fact, you probably won’t have much trouble finding lenders willing to provide financing.
That may come as a relief, particularly if you’re going to need a new set of wheels soon. However, even though you may be able to get a car loan after bankruptcy, it’s important to proceed with caution.
Financing a Car Makes Sense after Bankruptcy
Filing for bankruptcy will give you the fresh financial start you need, but your credit score may take a pretty big hit. Bringing it back up into an acceptable range will take some time, but you can help speed up the process and restore a solid credit rating.
To rebuild your credit faster after bankruptcy, you’ll need to use credit and make regular, on-time monthly payments. A secured card, with a limit based upon your cash deposit, is one option. However, if you are in need of a vehicle, financing a car could offer the same benefit to your credit score.
Getting a car loan can help you reestablish a good credit score, as it gives you the opportunity to make timely payments on a big-ticket debt. And since the vehicle serves as collateral for the loan, bankruptcy isn’t a deal-breaker for many auto lenders.
Bankruptcy and “Buy Here, Pay Here” Car Dealerships
With a compromised credit score after bankruptcy, you may be tempted by dealerships that offer guaranteed approval for car loans. “Buy Here, Pay Here” car lots won’t judge, and you won’t have to worry about being denied.
The problem is that these car dealerships charge extremely high interest rates and have lengthy loan terms. In addition, many sell older, high-mileage vehicles. So your car could end up breaking down long before you’re finished paying off the loan.
If you can’t afford car repairs as well as your monthly payment, you can easily find yourself in a familiar financial bind. Fortunately, you have other options.
Shopping for a Car Loan after Bankruptcy
You may not be able to secure a super-low interest rate on a car loan after bankruptcy, but you don’t have to settle for a sky-high rate from a subprime lender either.
For the best interest rate, wait as long as possible after your bankruptcy discharge before shopping for a car loan. The more time that has passed, the more auto lenders can see proof of your efforts to improve your financial responsibility. And as a result, your options will be better.
If you are in need of a vehicle immediately after your bankruptcy discharge, you may still be able to find a reasonable car loan by shopping around. Try your local credit union or bank before heading out to the dealerships.
You may not want to accept the first offer you receive, however. If one lender approves a loan with bankruptcy on your credit report, chances are others will too.
The experienced bankruptcy attorneys at Lewis Adams & Associates, serving the greater Salt Lake City area, can answer all of your questions about the Utah bankruptcy process. To schedule a complimentary consultation, contact our West Jordan office today.