Auto Loan After Bankruptcy

Auto Loan After Bankruptcy

by Alexander Anderson

In the past, people who had filed bankruptcy would not ever dream of getting a car loan. No financial company or bank would ever dare to extend a loan to people with poor credit, but now this is outdated, as there are more and more loan companies and they are ready to approve to these loan applications. It may surprise you, but it is easier to get approved for an auto loan, than for another kind of loan. As auto loans are collateral-based loans, and if you do not repay your money, the lender can use your car, or other type of vehicle as collateral against the loan.

The process of getting financing to purchase or refinance a vehicle after bankruptcy is a bit different from applying for a car loan with good credit. You will need to get approval from the trustee, who will handle your finances. To get this kind of approval you need to establish your expenses, also provide information about your current income. At last, give an acceptable explanation about the necessity of having a car. For example for taking kids to school, for transportation for work, or just some other serious reasons. After these provided information, the trustee will decide if you really need an automobile, and if you are capable to pay for your bad credit auto loan.

Auto loans after bankruptcy are very popular amongst people, because it is the easiest way to re-establish your credit soon. However, the downside is that it carries a very high interest rate, especially if your bankruptcy was recently discharged. Interest rate is very much depended on your credit score as well. If you have very bad credit, interest rate increases. For example if this rate is 9 or 10 percent, it may climb to 18% in case of having very bad credit. Nonetheless, if your credit score improves, you will have chance to refinance for a better rate.

The other option is to wait for a year or two to avoid high rates. During this period, you will pay most of your bills, your credit score will improve and then it will be possible to obtain an auto loan with fewer rates.

You should beware of unethical and shady lenders. Compare rates offered by different companies and find out the most reliable and reputable one. With this, you minimize the chance of being deceived, or use a service of an auto loan broker, for more financing options, as they have access to many lenders.