Buying A Car
After Bankruptcy
BK Auto Loan
Questions Answered
Buying a car after bankruptcy can be a confusing and sometimes stressful situation that may bring up a lot of questions.
It seems that there are a lot of individual websites that focus specifically on car buying or bankruptcy, but not many that answer specific questions related to car buying and bankruptcy... This led to the creation of this page where I've answered some of the most common questions that I've been asked regarding buying a car after bankruptcy. So, here we go...
Bankruptcy FAQ:
My Short Introduction
If you've already had a chance to read my about me page, then you'll already know that bad credit, no credit and bankruptcy auto loans are my specialty and what I really enjoy doing in this business. In addition to being my specialty, I have also been forced into bankruptcy myself, back in 2001. I've been where you are now and am not only able to answer your questions about buying a car after bankruptcy on a professional level, but from my own personal experience as well. I hope the following Q&A answers any questions you have and helps you to get the car and loan you are looking for. If you have a question(s) about buying a car after bankruptcy that was not answered here, feel free to contact me using the form below. Back to Top
I went to a local car dealership and they weren't able to help, what now?
When buying a car after bankruptcy you'll want to work with a dealership that specializes in subprime credit and bankruptcy auto loans. In this case, you were simply at the wrong dealership and they do not specialize in these types of loans. I've seen many dealerships, large and small, that quite frankly, want nothing to do with any loans that they deem to be "subprime." Prior to going be sure to let them know about your situation and specifically ask if they offer services for customers looking to buy a car after a bankruptcy. There are four questions that I've outlined on the bad credit auto loans page that you may want to ask as well. Back to Top
Are bankruptcy interest rates going to be much higher than what I used to pay?
When buying a car after bankruptcy, you can definitely expect rates to be higher than you may have paid in the past...How high? This will depend on your credit prior to the BK, what you've done to establish after the BK, loan structure, the lender that approves your loan and the vehicle you are buying (age, miles). There is a pretty big range here and I'd say that most of the customers that I work with that have more positives to their application get approved for interest rates in the 12-14% range. Other customers with less positives are approved for interest rates in the 18-24% range and go as high as 29.99%. The overall average interest rate, at my dealership, will fall into the 16-20% range. Keep in mind, although these rates may seem high, and they are, that this loan is not permanent and you have the option to refinance as soon as your credit rating begins to rise. For most customers I've found this takes between 12 and 18 months. It can be expensive to reestablish credit after a bankruptcy, but in the long run it's well worth it! Before you start applying for loans, I'd highly recommend you get your Free Credit Report + Score. See yours at CreditReport.com! Back to Top
Where can I find Lenders and/or Car Dealerships that specialize in Bankruptcy Auto Loans?
When buying a car after bankruptcy and looking for lenders it's important to know that most lenders will have certain loan program requirements that must be met in order for them to approve and fund the loan. That being said most banks and credit unions won't approve customers directly for bankruptcy auto loans. The reason being is that there are too many variables involved, i.e. - Loan structure
- Vehicle age
- Vehicle miles
- Max payment to income
- Max debt to income
- Minimum down payment requirements
- and on and on and on...
Because of all these factors it is usually easier to get approved through a dealership. They will also be able to more easily find the right lender for your specific needs, like no money down, limited income, BK not discharged, etc. Of course, if you have a great relationship with your bank and/or credit union, then those are great places to start to look. Just know that in this current economy a lot of banks and credit unions will not approve auto loans for customers with fresh bankruptcies (within the last two years), no matter what your relationship with them... Don't take it personally though, it's just their "set in stone" guidelines restrict them from doing so.
Two great sources to consider are
DriveTime and Instant Car Loan... DriveTime has the benefit of not only being the lender, but they are the car dealership as well. They sell very well maintained vehicles and approve close to 100% of all applications. You can learn more about them and apply here -- Bad credit, no credit, no problem.
Apply online; it takes 2 minutes.
The second option is Instant Car Loan. They are a subsidiary of CarsDirect (very big) and have a huge, nationwide network of dealers that specialize in bad credit and bankruptcy auto loans. To find a local dealership to help you, apply here No Obligation Auto Loan Quotes Buying a car after bankruptcy is not that difficult to do when you work with the right dealership that specializes in these types of loans. Back to Top
My bankruptcy is not discharged, can I still get an auto loan?
Yes, there are auto lenders out there that will lend money to just about anyone in any situation. That being said, I'd suggest waiting until you've had your meeting of creditors. If you don't, then you will limit the number of lenders that will give you an approval and you will be approved with some very unfavorable terms. If possible, wait until the BK is discharged, as this gives you the most options and the chance for the best loan rates and terms possible. Back to Top
Is there such a thing as a Chapter 13 auto loan?
Yes, Chapter 13 auto loans do exist, but are a little more difficult to qualify for than a discharged Chapter 7 bankruptcy. By more difficult to qualify for I don't mean it's not possible, but there are less lenders that will say yes. What scares lenders about Chapter 13 auto loans is that the vehicle can be included in the BK at any time which essentially handcuffs the lender and leads to them losing money. For most auto lenders, not all, in order to qualify for a Chapter 13 auto loan you will need to have been in Chapter 13 for at least two years and will need a letter from the trustee authorizing the new purchase. Back to Top
Can I get a loan from my local credit union?
Possibly. If you are able to get approved this is certainly going to be your best option. Unfortunately, unless you have a solid lending history with them most credit unions will require you wait two years before buying a car after bankruptcy. In addition, I've found that they are looking for an overall good credit history prior to your BK and some sort of reestablished credit after. Sometimes credit unions will consider accounts that were carried through your BK to count towards reestablished credit. I was personally a little nervous to view my credit after my BK, but once I did I realized things weren't as bad as I thought. It is extremely important to stay on top of your credit after a BK...Get your Free Credit Report + Score. See yours at CreditReport.com! Back to Top
How long does it take to reestablish credit after bankruptcy?
This will vary from person to person, but I can tell you from my experience that it took about 3 years to get to the point where I was able to buy a home no money down (with no docs) and to qualify for 0% on an auto loan. All in all, a bankruptcy will stay on your credit file for 10 years and I'd estimate that with a solid payment history you could be fairly well reestablished in 3-5 years. I can tell you that buying a car after bankruptcy and financing for a minimum of 12 months is one of the best ways to reestablish your credit. Don't pay it off to quick or you'll only receive limited credit and be absolutely sure to make all of your payments on time. Preferably, build up at least an 18 month (the more the better) payment history before looking to pay it off or trade it in. Back to Top
Will I need a cosigner to get approved for an auto loan?
Getting approved for an auto loan when buying a car after bankruptcy does not require you to have a cosigner. If you do happen to have a well qualified cosigner, then this may help to open more doors, to more lenders, and could possibly get you better rates and/or terms, but it is definitely not a requirement. If you're being told that you need a cosigner, then it's not the BK that's holding you back, but some other factor. Back to Top
Will I need a big down payment to get approved for an auto loan after bankruptcy?
No...But it helps! The majority of the customers I work with that are buying a car after bankruptcy have limited incomes and aren't capable of coming up with big down payments. I'd say the average down payment we get at my dealership is about $500, with some customers putting $0 down and others putting $1,000 down. Oftentimes, trade in equity can be used to substitute for a cash down payment. If you don't have a trade in that's okay too. Just know that a limited down payment might limit the selection of vehicles you can buy. If you are able to come to the table with $3,000 down, then you'll have more options as to what you can buy then if you were to come to the table with only $300 down. Back to Top
What should I expect once I'm at the car dealership?
Nothing less than excellent customer service. If anyone tries to make you feel like you are beneath them, then you are at the wrong dealership and they probably don't specialize in helping customers to buy cars after bankruptcy. Move on to a dealership that does. The process is actually made easier and will save time to get approved first and then to pick out a car. This is especially true if you have little or no money down. This eliminates the disappointment of finding your dream car only to find that in order for the lender to fund you'll need $8,000 down and your payments will be twice what you wanted, or can afford. The approval process may take a little longer than it has in the past and you may not get the exact vehicle you want, but you should be able to find one that meets your needs. Unfortunately, when buying a car after bankruptcy, you may have to humble yourself and possibly settle for something a little less than ideal... I'm not saying you should buy a "junker," but don't expect to walk in and point at the $50,000 Mercedes and be on the road within the hour. You are starting over and will have to "crawl before you walk and walk before you run." Keep in mind that you are reestablishing your credit and that this new vehicle is not a permanent fixture in your life. Think of it this way... Your just dating your new car, not marrying it!Fill out this 60 Second No Obligation Loan Application at InstantCarLoan.com to start your loan process today. Back to Top
Are there specific things I should bring to the dealership to make buying a car after bankruptcy easier?
When buying a car after bankruptcy, there are some pretty standard stipulations that your new lender will require you to provide in order to fund your loan. Here are 6 standard stipulations they will ask for: - Proof of Income (Pay stub, bank statements, SSI letter, etc.)
- Proof of Residence (Utility bill)
- Valid Drivers License
- 5-10 References (Physical address and phone number)
- Proof of Full Coverage Insurance
- Bankruptcy Discharge Paperwork (If not discharged, then proof of meeting of creditors)
In addition, you'll want to bring (if applicable): - Down Payment (If you're planning on putting money down)
- Trade In Title (If it's free and clear)
- Reading Glasses (For reading the contract)
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What future advice can you give me regarding my bankruptcy and auto loans?
Buying a car after bankruptcy is an important step to reestablishing your credit and this, along with any other credit obligations, should be taken very seriously. Be sure to make timely payments...Lenders frown BIG time on delinquencies after a BK. I can't stress this enough, do not pay late after a bankruptcy, your credit will thank you for it later:) The best advice I can give about buying a car after bankruptcy is to work with loan specialists that specialize in bankruptcy auto loans from the start. This will alleviate a lot of stress. You can apply here Get an Easy, Secure and Confidential Auto Loan Quote . Back to Top
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