A bankruptcy has a lasting effect on your credit rating, which can make it difficult to get approval on a car loan. It is possible to get the financing you need for your next car purchase. The following tips will help you get a car loan after a bankruptcy.
Cosigner
A cosigner can make it easier for you to get a car loan after a bankruptcy. The cosigner is responsible for repayment of the car loan along with you; their name will appear on the financing agreement. When you bring a cosigner into your loan agreement, that person’s credit rating will improve the credit worthiness of your application. Keep in mind that a cosigner should have a good to excellent credit score in order to be effective.
Higher Interest Rate
Be prepared to start off with a higher interest rate on your car loan after a bankruptcy. A bankruptcy on your credit report can limit you to financing options with a high interest rate. This can be countered with a larger down payment. You will pay less in interest over time if you can afford to pay more upfront and start the car loan with a lower principal.
Discharge Your Bankruptcy
Before you apply for a car loan, you should attempt to have the courts discharge your bankruptcy. When a bankruptcy is discharged, the debts involved that are still unpaid will be reduced to a zero dollar amount. This will lessen the negative effect on your credit rating as a result of the bankruptcy, which will make it somewhat easier to get approval on a car loan.
Other Requirements
There are other approval requirements lenders will look at when you apply for financing. Be prepared to provide proof of income sufficient to keep up with the monthly car payments. Financing companies that specialize in providing car loans to applicants with credit issues like a bankruptcy will consider these factors heavily when deciding whether or not to approve your car loan.
Allow Time to Pass
One of the best ways to improve your chances of getting approval on a car loan after a bankruptcy is to wait as long as possible before applying. As time passes, the bankruptcy will have a decreasingly negative effect on your credit. Bankruptcies are removed from your credit report seven to 10 years after it is filed. If possible, wait until it is removed before attempting to get a car loan.
Even though you may need to prepare for higher interest rates, it is possible to get a car loan after filing for bankruptcy.
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