How Long after Bankruptcy Can I Get an Auto Loan?

This question has a number of variables.

1) What type of Bankruptcy did you file?

Chapter 7: If you filed a Chapter 7 Bankruptcy, once you are discharged there are no limitation of new purchases or new credit. If you can find a lender to lend you the money, there is no trustee approval required. There is no limitation for receiving a car loan based on a discharged Chapter 7.

Chapter 13: If you are currently making your payments under a Chapter 13 Bankruptcy plan, you will need trustee approval to get a new loan. This is not typically a problem if you are current and the new payment will not have a negative impact on your ability to pay. Once you are discharged, you will be able to receive a new car loan with no trustee approval and no limitation caused by the bankruptcy.

2) What is your credit score?

Most automobile lenders do not have specific limitation on granting a loan based upon a previous bankruptcy. When they are reviewing your application your credit score will have paramount importance. Here are some ways to rebuild credit and improve your score after bankruptcy. The short version is, make sure all discharged debts so as discharged on your credit report. Then borrow money you can afford to repay (secured credit cards, CD secured credit union loans, etc.) then repay them without any lates. Though it seems obvious, the higher your credit score, the less the bankruptcy will matter. Focus on rebuilding your score and it will make borrowing new money easier.

3) Are you buying from a new car dealer, used car dealer, or a private party?

New Car Dealer: Most new car dealers have manufacturer subsidized financing options. These programs can be very effective in receiving new financing at reasonable rates. Ford has had a program to allow you to receive a new car lease immediately after bankruptcy. You will pay more for a new car than a used car. However, with the remarkably lower rate of interest you can have a lower payment on the more expensive car. Shop carefully and be clear on all the terms of the new loan.

Used Car Dealer: Many used car dealers have “Buy Here, Pay Here” programs. These are dealer financed car loans. You will pay a higher sticker price and a higher rate of interest than a traditional car loan. However, since these loans are made from the dealer directly to the buyer, most traditional underwriting standards are ignored. If the dealer likes you as a credit risk on a personal basis, then you will likely receive the loan. The huge downside to the private dealer loans is the fact that many do not report to credit bureaus. You will receive the loan and the car, but it will not help you rebuild your credit score. Used car dealers also have access to more traditional lenders with loan products designed for low credit score borrowers. These programs will be very expensive, but will report to credit bureaus. Be sure to not borrow more than you are able to afford since you want to be rebuilding your credit, not digging the same hole you just got out of with the bankruptcy.

4) Are you making a down payment?

Most automobile finance programs are based upon the loan amount versus the value of the vehicle. Just like a home mortgage, if you put your own cash into the deal you are more likely to qualify at a better rate of interest. The zero down, zero drive off type deals are only available for the very best credit scores. When you go car shopping, plan to put 20% down and you will have a better chance of getting the car you want at a payment you can afford.

So the bottom line, depending on the type of bankruptcy you filed, how good your score is, where you buy and how much you have for a down payment, you can buy a car immediately after discharge with no problem.

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