Can I Get a Loan after I Declare Bankruptcy? Your Guide to Bad Credit Car Loans

Written by Banks Editorial Team
3 min. read
Written by Banks Editorial Team
3 min. read

Are there any tips for bad credit car loans? Filing for bankruptcy is never an easy decision. But for some people, it may be one of the few options available to get out from underneath soul-crushing debt. If you’ve been forced to file for bankruptcy, it’s imperative that you have a plan in place to begin the process of rebuilding your credit. Depending on whether you file for Chapter 13 or Chapter 7, the timelines for doing so may vary.

Chapter 13 and Bad Credit Car Loans

Chapter 13 bankruptcy involves restructuring your existing debt. Debtors create a plan that is subsequently approved by the court. During a Chapter 13 bankruptcy, regular payments are made to the plan Trustee who then pays creditors. Debtors cannot take on new debt unless approved by the trustee. This means that even if you can find a bad credit car loan, you may not be able to purchase a new car until such time as the bankruptcy is discharged. Generally, a Chapter 13 may last for up to five years.

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Applying for a Car Loan After Chapter 7

Chapter 7 bankruptcy filings are typically discharged within approximately six months. However, your credit report could reflect this filing and discharge for a period of up to ten years. Therefore, if you need a car loan, your only option may be to apply with a lender who works with individuals with poor credit. And this will come at a higher cost in the form of a higher interest rate on your loan.

Buying a Car with Bad Credit

There are a few things you should do if you plan to take out a car loan after your bankruptcy has been discharged. As referenced above, you will likely pay a much higher interest rate than if you had great credit. This is because car loans for borrowers with bad credit are riskier than those loans extended to those with good or excellent credit. The lender is taking on a considerable risk after someone has filed for bankruptcy. However, you will have options that could strengthen your position in this situation. A couple of these include:

  1. Stay Current with Housing Payments: Whether you have a mortgage which you are still maintaining after you have declared bankruptcy or you are a renter, staying current on your payments will help when applying for a car loan. Your mortgage company will report your payment history to the credit bureau and while your landlord typically will not, it may be possible for you to ask them to verify on-time payments when applying for a car loan.
  2. Obtain a New Credit Card: Debtors are often surprised at how quickly they are offered new credit cards after declaring bankruptcy. In some cases, these credit cards are secured cards, but they can help you rebuild your credit score after a bankruptcy discharge. The fastest way to rebuild your credit is to make your payments on time and keep your balance low. Ideally, you are paying off the entire balance each month.

Finding the Right Bad Credit Car Loans

Borrowers with bad credit should use caution when shopping for a car loan. There are some dealers who promise to help you regardless of your financial situation, but they often do so by only offering higher interest. This is typical of lenders who cater to consumers with bad credit. You should comparison shop by contacting several dealers. This will allow you to compare rates and repayment terms. Remember, now that you have bad credit, buying a car is about more than just the car. It’s also about the financing as well.

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When contacting lenders or dealers who specialize in bad credit loans, be honest about your situation. However, do not allow them to pull your credit until such time as you have settled on a lender. Keep in mind, if your credit is pulled by a lender, it will be reflected on your credit report. This may further reduce your credit score, and could even make it more difficult for you to get a car loan.

The Impact of Your Income and Expenses

If you are searching for a new car loan, even after you have had a bankruptcy discharged, it is important to remember that your income and expenses will be reviewed by the lender as well. Even when the lender specializes in bad credit car loans, they will want to make sure you are able to make regular auto loan payments, maintain your vehicle, and pay for insurance.

Those borrowers who have strong employment history and a steady earning record will be more likely to qualify for a car loan than those who have recently changed jobs. While the answer to the question ‘can I get a car loan after I declare bankruptcy’ is yes, there are caveats that you need to be aware of. Do your homework, make sure there are no errors on your credit report, and understand that you’ll probably have to pay a higher interest rate on your loan. Those are the basics heading into your new situation.

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