Buying a Car After Bankruptcy
Buying a car after bankruptcy - What auto lenders will consider to say yes to auto financing after bankruptcy, whether Chapter 7 or 13.
Buying a car after bankruptcy is fairly easy if you know what to expect and where to get the auto financing you need. Some buyers will find it is easier to get approved after their bankruptcy, then it was before, while others may find that it's a bit more challenging than it used to be.
Here's what is covered below:
- Chapter 7 vs Chapter 13
- Your Credit Before, During and After
- Five After Bankruptcy Situations
- Whether You'll Need Down Payment
- What Documents You Will Need for Funding
- Where to Find the Best Auto Financing After Bankruptcy
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Chapter 7 vs Chapter 13
There are two situations that we'll cover for buying a car after bankruptcy. One is a discharged Chapter 7 and the other is a Chapter 13. With a Chapter 13, it can either be discharged and/or you can currently be in bankruptcy.
A Chapter 7 Bankruptcy wipes out whatever debt was included in it with no chance for the original creditor to try to collect once the bankruptcy has been discharged. All accounts included in a Chapter 7 will be written off (charged off) as a loss.
Even though these debts are wiped out, it does not mean that your credit slate is wiped clean. In fact, that BK is going to hang around on your credit for the next 10 years. All the accounts included in your BK will be on your credit for the next 7 years.
A Chapter 13 on the other hand is more like a repayment plan that is managed by a trustee assigned by the court. With a Chapter 13 Bankruptcy you will need to get a letter from the trustee OK'ing your auto financing and most lenders will require that you have two years under your belt before they will loan you money.
The following information will be based on a discharged Chapter 7, a discharged Chapter 13 and/or a letter from the trustee and two years in to the Chapter 13.
Your Credit Before, During and After
What you have done (or have not done) before, during and after your bankruptcy will play an important role in what type of approval you will or won't get.
Have you seen your credit since your bankruptcy? If not, take a look... Free Credit Score - See yours at CreditReport.com! You may be in a better situation, hopefully not worse, than you think.
When you're buying a car after bankruptcy, your good credit before you filed can be a positive factor for a lender. If you paid your bills well before and some outside factor, i.e. death of a spouse, loss of job, adjustable mortgage, medical situation, etc. was the obvious cause of your bankruptcy some lenders will take this into consideration and the terms of your approval may be quite a bit better.
Just the opposite is true if your credit was rather poor before. The bankruptcy has wiped out your debt, but your credit prior to the bankruptcy shows that you weren't as reliable as a lender might liked to have seen. You can still get approved, but your prior credit won't do you any favors.
If there were any accounts (a car loan, a home loan, etc.) that were carried through the bankruptcy and paid well, then that will certainly have a positive impact on a lenders approval. This would to a lesser degree serve as reestablishing your credit.
Carrying accounts through a BK is one of the better situations to be in when buying a car after bankruptcy, because it will show you were trying to pay what you could and didn't simply give up on all your obligations simply because you could.
If you included all accounts when you filed, then you can still get approved, but again, it will do you no favors.
Have you established any new lines of credit since your BK was discharged? If so, and if they have been paid well, then this will go a long way towards getting you a better approval. Anything from credit cards to home loans will help.
If you've done nothing, then you are sort of in a neutral zone and may have to settle for lesser terms than someone that has begun to reestablish their credit.
If you've had accounts that went to collections, even something as minor as medical collections, this will really hurt. If it's more than just medical collections and you've paid poorly on credit cards or installment loans, then this will make the terms of your approval much less than favorable. This is the worst situation you could be in when buying a car after bankruptcy.
Five After Bankruptcy Situations
The following five situations after bankruptcy will be covered from the best situation to be in when buying a car after bankruptcy to the least desirable situation to be in.
1. Over 5 Years Old With Reestablished Credit
If your BK is 5 years old or older, then that will open the door to a lot more prime lenders. Your reestablished credit will also go a long way to prove that you are past your credit issues and looking to prove your credit worthiness once again.
If you are in this situation, then no money down should certainly be a possibility (assuming no bad credit). Depending on your credit score, prime rates should also be obtainable. Credit union auto loans work really well in these types of situations, but banks can also be very competitive here as well.
Take a look at Money Aisle, they work with credit unions nationwide that may be able to help.
2. Over 2 Years Old With Reestablished Credit
Most lenders that will offer decent terms to customers buying a car after bankruptcy will look for a minimum of 2 years from the discharge date. This includes credit unions, which tend to be the best bet for auto financing after bankruptcy.
Reestablishing your credit afterward has the same benefits as listed above. It shows that you are taking proactive steps to get back on the right track. By the way, an auto loan is an exceptional way to rebuild your credit.
With the right lender, no money down is possible here and even prime rates (usually with a credit union) are achievable (with a good credit score). Check what rates you may qualify for, no SSN needed.
3. Over 2 Years Old With No Reestablished Credit
The biggest difference in buying a car after bankruptcy here vs. the situation above is going to be the amount you can finance. The first lender to loan you money after your discharge is not going to want to risk loaning you a whole bunch of money. You'll need to (re)prove your ability and willingness to pay on time.
You may still qualify for no money down and decent rates, but having a fair amount of cash down shows commitment and may help a lender feel more comfortable loaning you a larger sum. Check bank and credit union rates when buying a car after bankruptcy.
4. Recently Discharged
If you are buying a car after bankruptcy and your discharge date was within the last 2 years, then you more than likely will not qualify for the prime lenders programs.
Yes, you can still get approved, but you will probably have to use a non-prime or sub-prime lender. Expect to have to put some money down ($500-$1000 minimum), higher rates and they probably won't lend you more than 10-$12,000. The amount you can borrow will be based on many additional factors, but that is a good range to expect to be in.
Again, more money down will make the lender feel more comfortable lending you more money. Apply here, it's Easy, Fast, & Free--Apply Now for your Auto Loan!
5. Negative Accounts After
This is the worst situation you can be in when buying a car after bankruptcy. Lenders frown, big time, on slow paid accounts or collections after a BK. This basically tells them that you are heading down the same path that led to your BK in the first place.
Expect to put some money down ($1000 - $1500 minimum) and high rates in the upper teens to mid 20's. In addition, you will not be able to get a loan on your own. There are no lenders that I am aware of that will lend money directly to the customer in this type of credit situation.
You will have to use a dealership that is contracted with lenders that specialize in auto financing after bankruptcy. Fill out this quick, 60 second application with Auto Credit Express� and a local loan specialist will be in touch with you shortly to discuss the details of your loan.
What You'll Need to Fund Your Loan
In the past, you may have been used to no doc loans, simply sign and drive. Unfortunately, that is more than likely not going to happen for you this time around. Most lenders will ask you to provide:
- Proof of Income (paystub, bank statements, 2 years tax returns)
- Proof of Residence (utility bill, lease agreement)
- 5-10 References (full name, address and phone number)
- A Copy of Your Bankruptcy Discharge Paperwork
Summary for Buying a Car After Bankruptcy
Money down is not always necessary, but will certainly help in all the situations listed above. The more you can come to the table with the greater your chances of getting a better approval with better rates.
Credit unions are a great source of loans when buying a car after bankruptcy and if you'd like to try to go it alone and arrange your own financing, you can search for local credit unions here Credit Union Locator.
Lastly, working with a dealership that specializes in auto financing after bankruptcy will typically be the easiest way to go. If you find yourself in one of the tougher situations mentioned above, then it may be the only way you can get approved. Get an Easy, Secure and Confidential Auto Loan Quote in 60 Seconds .
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