Buying a car after bankruptcy will probably not be as easy as it was before bankruptcy, but it can still be done.
Your credit will be damaged by bankruptcy, and it will take time to get it back into shape. However, if you are current on all of your debt obligations, then getting a car loan is usually possible. Although you will probably have to pay a higher interest rate than you would have before bankruptcy.
The good news: Getting an auto loan can actually help you build your credit score after bankruptcy. As long as you are able to make the monthly payments on time, any loan that you stay current on improves your credit score.
First Steps: Work to Rebuild Your Credit
The easiest way to get a car loan is to start rebuilding your credit history.
Start by getting your credit report and making sure that you clear up anything that is outstanding before applying for a loan to purchase a vehicle. You can contact creditors to try to clear up any discrepancies on your report and make sure everything is accurate.
Then take steps to build positive credit: Get your finances under control, reduce spending, make all payments on time, and consider getting a credit card so you can start establishing a credit account.
Tips for Getting an Auto Loan After Bankruptcy
When you’re ready to start shopping for a car and auto loan, consider these tips:
Explore Auto Loans From Credit Unions
Contact a credit union and inquire about financing a vehicle through them. A credit union can help you get a lower interest rate some of the time. You may have one that your employer is associated with or one in your community that allows local residents to become members. Usually, depositing just a little money into a bank account allows you membership and some of them will give loans to individuals whether or not they have a bank account with them.
Put Money Down
Put down a large down payment. The more money you put down, the more likely you’ll get financing.
Get a Cosigner
You can ask a friend or family member who has good credit to cosign the car loan. This might help you get a lower interest rate too. But be sure to make your car payments. If you don’t, your cosigner is on the hook.
Buy a Used Car
Used cars are less expensive, and sometimes you can get a great deal, especially in a bad economy. Buying a cheaper car means a smaller auto loan – and the smaller the loan, the easier it is to qualify.
Having a lower car payment is a smart financial move too – you can free up money to put towards savings or an emergency fund.
Save and Pay Cash
The easiest (and some financial experts say the best) way to buy a car after bankruptcy is to save your money and pay cash. You’ll avoid paying interest, and you don’t have to worry about qualifying for an auto loan. Consider taking public transportation while you sock money away (you’ll save on auto insurance, gas, registration, and car maintenance during this time period too). Of course this plan doesn’t work for everyone – for example, if you need a car right away.
If you have questions about bankruptcy and how it will impact your ability to get a car or other credit later on, consider talking to an experienced bankruptcy attorney.
Learn more about what happens to Your Car in Bankruptcy.