Car Loan With An Open Bankruptcy

by Kelly
(Victor, NY)




Question: Can we get a car loan with an open bankruptcy? I am writing this because we are due to return our lease vehicle, but my husband got hurt a couple years ago at work and we had to file a chapter 13 Bankruptcy. The Bankruptcy will be discharged in 18 months.

My credit score is a 698 and my husband's credit score is a 634.

We have paid all our bills on time and are back on track. We make 85,000 a year between our 2 incomes.

I am looking for some advice if we would get approved for a car loan and where the lenders would see us.

Thank you,
Kelly


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Answer: Hi Kelly,

You should be able to get approved for a car loan with an open bankruptcy, but you're probably not going to like the terms.

One lender that comes to mind is United Auto Credit. They specialize in auto loans under these circumstances. As I mentioned, you probably won't like the terms though. You'll be looking at a high rate (like in the 20's) and possibly a shorter term (which could make the payments higher).

You have a solid household income, which definitely looks good to a lender, but most lenders shy away from loans with an open BK. So the ones that do them they make you pay.

The thing that scares lenders is that the vehicle could be included in the BK at any time, which of course translates to a higher risk for them.

One important note here is that you'll probably not be able to find a lender that will loan direct to you and you will more than likely have to work with a dealership that is familiar with and has the lenders for these types of loans.

For instance, United Auto Credit does not lend direct to the consumer, but only arranges loans through dealerships that they are contracted with.

Be prepared when you go as this will eliminate some stress and aggravation. The lenders will be looking for:

  • A letter from the trustee authorizing the purchase
  • Your bankruptcy paperwork
  • Proof of income
  • Proof of residence (utility bill with both names)
  • 5-10 references (name, address, phone number of family or friends)
  • Possibly a letter of explanation for the BK
  • Minimum of 10% down (Sometimes it is only $500-$1000)

Be sure the dealer has an approval before taking delivery, so there is no chance of them calling you down the road to break some bad news to you.

A lot of dealers will do this (it's called a spot delivery) and will call you a week later to tell you your rate went up, you need more money down, etc. It's not cool!

Hope all goes well for you and please don't hesitate to contact me again with any other questions.

Justin

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