Getting A Vehicle Loan After A Bankruptcy

By Author: Kelsey Jennings
Total Articles: 5
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Watching your credit rating deteriorate can be frightening. A low credit rating means a reduced chance of getting agreeable interest rates when borrowing money or obtaining a car or home loan. Your credit rating dives drastically lower when you're forced to file bankruptcy. However, if you’re carrying a lot of burdensome debt, filing bankruptcy may have been the best thing for you if you needed a new car. Car dealerships are the first creditors to offer loans to a person with a recently discharged bankruptcy. Their reasoning behind this move is that you are free from being hounded by creditors and have freed up a lot of your disposable income. This is especially true for Chapter 7 bankruptcies, which erase all debt included in the bankruptcy filing. What better way to reestablish your credit worthiness than with an installment loan like that of a car note?


The loan repayment period will last anywhere from 36 months to 60 months and will have a very positive effect on your credit rating if paid in a timely fashion. Therefore, car dealerships aggressively recruit newly bankrupted clients for new car loans. ...
... In fact, the first solicitations you’ll receive from creditors after filing bankruptcy will likely come from car dealerships offering favorable loan terms to recent bankruptcy filers. Naturally, you might be skeptical about the terms you would receive after bankruptcy, but the interest rates are not as bad as you might think.


Today’s lending market has a whole group of lenders who specialize in subprime lending for filers of bankruptcies and other persons with bad credit issues. Sometimes, these loans can work in your favor. At other times, it is better to shop around until just the right loan can be located. Shop the market for the best rate on your first car loan after bankruptcy. The average rates offered to recently discharged bankruptcy filers may appear high because the interest is based on your current credit rating. Take the higher interest loan if the payments are affordable, but plan to refinance at a lower interest rate after making timely payments for 6 months or more.


Because the 2 main types of credit activity are credit card and installment loan usage and payments, it is best to include at least 1 of each when attempting to rebuild your credit. A car note and a credit card with a small credit line are an excellent way to increase your credit rating. Paying the installment loan and the credit card at a faster rate by paying more than the minimum due will advance your rating at a faster pace. Keeping the credit card usage to below 30% of the maximum balance will also help. An example would be if your car note was $250 per month, due on the 15th, you could pay $275 on the 10th of every month. Also, your credit card payment could average $30 per month, due on the 1st. You could choose to pay $45 on the 15th, fifteen days before the due date. Your credit will improve much faster if you maintain this rate of payment for at least 6 months, preferably for a year or more. Never miss payments or send in late payments if you want to see improvements in your credit score.


Currently, car loans for people with excellent credit range from 2.34% interest to 3.24% interest. For persons with credit scores in the 500’s or less, the interest could range from 6.7% to 13.5% interest for the same cars. That could mean a car note payment of $379.59 at 3.24% interest for 60 months on a $21,000 car and a payment of $483.21 at 13.5% interest for the same loan to someone with poor credit. That results in the person with poor credit having to pay $6217.20 more for the same vehicle as the person with excellent credit. Until the person with poor credit can improve their credit rating, this will continue, unless they take the plunge and pay the higher cost until their rating improves. It’s an unfortunate situation to find yourself in, but if you continue to pay your bills on time you’ll eventually improve your credit and be on equal footing with the person who has never suffered from a credit problem.


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