Car Loan After Bankruptcy Discharge

by Marty
(Ohio)




Question: Will I be able to get a decent car loan after my bankruptcy discharge? My bankruptcy was a Chapter 7 and was discharged in November 2010. I am looking to get financed for a new car loan.

I am employed with the same employer going on 25 years, I don't have any other debt except for a home that I am buying on a land contract. My house payment is $360 a mo. and my pre-tax income is $3600 or better a mo.

What would be decent terms for such a loan for a person in my situation. Thanks for any help you can offer.


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Answer: Hi Marty,

Getting a car loan after your bankruptcy won't be the hard part. What will be is getting decent terms.

Let me start with some of the positives and then I'll explain what you can expect and how to get better terms in the near future.

As it stands, you've got great stability at work, which lenders love to see. In addition, you have a good monthly income with limited debt...Lenders also like to see this as well.

What lenders won't like is how recently your your bankruptcy was discharged. Many lenders that are going to offer you decent terms for your car loan are going to want a minimum of 2 years from your discharge date before they will even consider your application.

Sometimes exceptions are made if your credit was solid prior to the bankruptcy, but usually they will be looking for you to have at least 18 months from the discharge to make this exception.

More than likely what you'll wind up with (assuming you were to buy in the near future) is an approval that gets you rates in the upper teens to low 20's...I know that stinks, but if you want to buy now that is probably what will happen.

Don't worry though it's not the end of the world and you're not married to this loan for the full term.

What you'd want to do in this situation - assuming you accept the terms and buy the car - is to pay on this loan well for roughly a year (12 months to 18 months) and then look to refinance with a credit union.

Once you have 12-18 months of well paid car credit, you'll be well on the way to reestablishing your credit rating and at that time (depending on what your credit score is) you can look to a credit union to refinance your car loan in the upper single digits to low teens.

Unfortunately, a car loan after a bankruptcy discharge requires one to "Bite the Bullet," so to speak, while rebuilding. Fortunately, this process doesn't take that long as long as you stay on top of your credit.

I not only say this from over a decades worth of experience as a Finance Manager, but also from personal experience...A well paid car loan is one of the best ways to rebuild after a bankruptcy!

If you choose not to buy now, then be sure to start trying to rebuild now. Get yourself some sort of new credit (credit card, personal loan, secured loan, etc.) and look to buy your new car in that 18 month to 2 year range.

Hope this helps,
Justin

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