In the wake of a bankruptcy, your credit is probably in sad shape. Depending on how your discharge of bankruptcy went, your credit may not have plunged too far into the depths of bad credit, which can have more of impact on your loan conditions than you think. Remember that lenders divvy up the bad credit market into subprime and deep subprime, and if your bad credit doesn’t fall too far into the hole, you may have a chance at a decent car loan. While it is possible to get a car loan during bankruptcy, the hoops you have to go through are tight ones, and one mistake can undo any progress toward settling debts. There’s also the additional step of getting the approval of a court appointed trustee before the loan can happen. But, once the proceedings are done, you’re back to a relatively normal life, and a car loan after bankruptcy becomes a matter of finding a willing lender.
During bankruptcy, most lenders won’t touch you with a ten-foot pole. But, after bankruptcy, you only have to deal with the common problems of having bad credit, and a tight budget. Your income may be of help if it’s steady, and able to withstand the monthly payment obligations. A lender will examine your post-bankruptcy finances to make sure you’re able to pay off the loan, especially at the interest rates you’re likely to face. A lender may also require a minimum down payment in order to make the loan happen. It’s in your best interest to make as high a down payment as possible in order to lower your interest rates, and make the remaining balance smaller.
Say you’re in the market for a nice, economy, car for $12,000. In a car loan agreement of 48-months, at 10% interest (remember, you’re recovering from bankruptcy), with a 6% sales tax, putting down 20% ($2400) will have the following results: Your monthly payments will be $261.74, your total interest paid will be $2,243.61, and the total cost of the car will be $12,563.61. By upping that down payment to $4000, those numbers change to monthly payments of $221.16, total interest of $1,895.76, and a total payoff of $10,615.76. The savings on interest alone is over $400. A higher down payment can also help reduce the interest a lender will offer. It’s a demonstration of your commitment to the investment, and a reduction of risk to the lender.
Like the rest of your financial life, you’re in the process of rebuilding your credit, and a car loan after bankruptcy can be a help. Though your credit scores will dip a little bit at the start of the loan, racking up a history of making monthly payments on time and completing the loan without incident will improve your scores significantly. You’ve also established a reputation with the lender who may want to see your business again with a chance toward cheaper financing in the future.
A post bankruptcy life means you have to pay close attention to your budget, your existing debts, and your choices in future purchases. With less than perfect credit, your choices in cars should reflect the frugal life you needed to adopt. Like any well researched economy car, your research into a lender should be done with equal diligence. Don’t jump on the first loan approval that comes along. The car loan industry is driven by competition and, after your bankruptcy is over and done with, you can enjoy the savings that competition can breed. Bankruptcy is not the end of the world. Treat it like a new beginning – a little wiser, and a little stronger.