Bankruptcy is a difficult decision for many people, and often brings up questions. People wonder; how will bankruptcy affect me in the long run, will I be able to buy the things I need, or what if I can’t get the essentials, like a car? Bankruptcy will affect you, but also know that there are lenders willing to take a chance on those who are working to reclaim their financial health. One of the most important elements for having that health is a car—it is the tool that allows people to look for and keep employment. Here is what you need to know about bankruptcy and purchasing a car.
The Road Back from Bankruptcy
The first thing to remember when you’re in the post-bankruptcy period is what got you there in the first place. Since most Americans live one step away from financial disaster, it helps to develop habits that let you avoid that scenario. If you are going to make any major purchase, you need to get a few things very clear. First and foremost, it’s best to avoid buying things that are beyond your budget, no matter how much you want them. You may need a vehicle, but you don’t have to get your dream car just yet.
Here are four things to remember when you are on the road back from bankruptcy:
- Know your priorities. It’s essential to clarify what you want and what you need. In regards to a car, most people only need something reliable and that fits your purposes. That doesn’t necessarily mean a brand new car—especially when there are excellent used cars available for purchase.
- Stick to a budget. This can be looked at from a few angles, including finding a great deal/value and staying within your income level. If you work at a restaurant, chances are you shouldn’t be buying that new Escalade.
- Keep your credit in mind. Everything you purchase on credit is an opportunity to rebuild. It’s also an opening to make the same mistakes again. When you look at the things you want to finance, make sure you can pay it back on time. If you can’t pay for it; it’s not time to buy it yet.
- Research, research, research. Don’t head to the first place you see and buy the first thing you like. You’re trying to make better financial and budgetary decisions. Take the time to look around and learn about what you’re buying. You want to ensure it’s a good investment.
The Bankruptcy-Car Purchase Timeline
A crucial thing to note before you head into bankruptcy is that you’ll most likely not be able to purchase a car or get a loan quickly after the process begins. You have legal issues to deal with in the first few month following a bankruptcy, therefore, lenders are going to wait before taking a chance on you. Many will even want to see you establish some credit (hopefully good) again before moving forward. However, there is still a small chance that you may be able to get a car loan. It will take a lender willing to take a risk, and you may have to pay a high price on interest. Again, do your research and try to avoid predatory lenders. Go with a used car dealership that really has their customer’s best interests in mind.
Adjust your Expectations, and Your Habits
Just because a bankruptcy removes the pressure, don’t expect to easily swing back into lender’s good graces. Your past history with car loans is going to be a huge determining factor in whether you’ll be able to get a car loan after a bankruptcy or not; at least until you can prove a solid payment history on your loans. If you have other factors that may help explain things, such as reasons why you went bankrupt, share them with potential lenders. They may be able to understand and work with you.
One of the best things you can do after a bankruptcy to avoid the situation again is to create new habits. Some of the things to focus on are:
- Create and keep a budget
- Save, save, save
- Learn to separate wants from needs
- Shop carefully when getting a loan, and make sure to pay on time, every time
- Live within your means
- Track your spending
Bankruptcy doesn’t mean the end of the world, or the end of the ability to buy a car. Just make sure that when you do purchase a car, that you’re taking into consideration all the things you need to do to make it a positive experience, not a bad credit inducing one.
