Getting a car loan after bankruptcy is easier than you think. I started getting offers for car loans even before my bankruptcy was discharged. Not all loans are good deals though, and who you borrow from does matter. So, let’s take a look at the best way to get an auto loan after bankruptcy.
Why you might want an auto loan after bankruptcy:
Getting a car loan right after your bankruptcy does have some advantages. The biggest advantage is because it will help to repair your credit score from the damage the bankruptcy caused. Having a record of regular, on-time payments to a bank or car lot will raise your credit score over time. Also, auto loans are considered part of the “good mix of credit” that your future lenders will want to see.
So, all the way around, if you can reliably make the payments, getting an auto loan is one of the best things that you can do to repair your credit after your bankruptcy. It’s a personal decision though, and it depends on where you are with your finances – make sure you are ready for that payment!
When we had to replace our car after bankruptcy, I ended up choosing not to get an auto loan because I wanted to save the money instead of making a car payment.
Yes! I want to finance a car, what do I do?
Here’s the short and sweet step-by-step guide to financing a car after bankruptcy.
Step 1: Check your credit score.
You need to know your credit score before you ever walk on to a car lot. There are plenty of unscrupulous car dealers, and some of them will actually try to convince you that your credit score is lower than it is! That means that you will only get financing at the highest interest rate possible, and that will cost you far more money over the life of your loan.
So, visit My FICO and pay to see your credit scores. You can also get current copies of all of your credit reports for free at Annual Credit Report.com. If you do those two things, you will know exactly where you are starting out, and that will help you determine what interest rates you should be able to finance a car at.
Step 2: If you have time, clean up your credit report.
With this step, I want to stress the “If you have time”. It can take a couple of months to challenge items on your credit report and get them removed. Also, if you challenge too many things at once your credit score will be frozen, and you won’t be able to borrow money at all until your disputes are resolved.
If you have two or three months before you know you need to finance a car, then challenging items on your credit report is a wonderful thing to do. In nearly every case, it will raise your credit score – which means that you will get an even better interest rate when you finance.
We have a free step-by-step guide to disputing items on your credit report. It walks you through the dispute process, and gives a sample letter of dispute. If you have the time to do this step, definitely take the time to do it. It could save you thousands of dollars over the life of your car loan.
Step Three: Who you borrow from matters!
If you have declared bankruptcy, you are definitely going to get financing offers. One of our readers, , suggested keeping a folder of your offers so that you can compare them all when you get ready to finance a car.
Keep in mind though, that who you borrow from really does matter. If you can finance a car from a major dealer (Ford, Toyota, Kia, etc.) it is going to look a whole lot better to your future lenders than Bob’s -here-pay-here lot.
It’s very normal to feel like you have no options after bankruptcy, and to think that you have to go to one of those sub prime lots. The truth is, you may have to – but don’t start there. Start with the major dealerships first because they do sometimes finance people with bankruptcy. The trick is to investigate the dealership first.
Step 4: Investigate car dealerships in your area.
Do NOT fill out online applications. If you do, the dealership will run your credit report, pull your credit scores, and may not even call you back. When they run your credit report it will count as an inquiry and it will lower your credit score. Then when you go onto the lot, they will run your credit report again. It’s just a useless inquiry – so skip that step! Instead, pick up the phone and give them a call. Ask them point blank if they offer financing to people who have declared bankruptcy.
Personally, I would call every major dealership in your area, speak to a financing officer and give them the following information:
- Your current credit score
- The amount of your down payment
- Ask them about financing after bankruptcy.
- What do I need to bring with me when I come in for financing?
Then before you hang up, there is one more very important thing to ask. If they do not sound like they are going to be able to finance you, or they hem and haw around, ask them these questions:
What do you think I should do? Who should I try to finance through? Where is the best place for me to go? Do you know of any car dealerships that would be willing to work with me?
This will help you explore your options a little.
Step 5: Choose a dealership, and get your paperwork together
Make an appointment with the dealership that you like best, and make sure that you take the following things with you:
1) A current copy of your credit reports. Yes, I know that the dealership will pull your credit reports no matter what. However, taking in a current copy shows that you are serious about your credit, and it may discourage them from trying to cheat you – especially at a less reputable car lot.
2) Proof of income – The one thing that everyone is going to want to know after you have declared bankruptcy is “Do you have a job?” So make sure that you take in six months to a years worth of paycheck stubs.
3) Proof of a checking and savings account – This just shows that you are prepared, and legitimate. It’s a stretch to get anyone to lend you money after bankruptcy. The more prepared you can be, the easier it will be to get financing.
4) If you are trading in a car, make sure you have the title and tags current, as well as current car insurance.
5) Bring in anything else the dealership said they needed when you spoke to them on the phone.
Step 6: On the lot
When you first step on to the car lot, you can pretty much forget about looking at the cars! I know, that’s harsh, but it’s true. Because you’ve declared bankruptcy, you are going to want to do things the other way around. Get financed, then choose a car.
When you first walk onto the lot you have no idea if you can get any sort of financing, so figure that part out first before you get attached to a car that you can’t get a loan for.
So, walk straight into the main office and request to meet with a loan officer. Ask them what they think your best option is. Should you finance a new car? A used one? Should you lease? Get their opinion on it. It doesn’t mean you should completely change your plans around based off of their opinion, but it does mean that they may be able to finance you under better terms if you consider some alternate options.
The loan officer will walk you through the application process. Just be as honest as you can. You’ve come in prepared, and done your research, so you have nothing to worry about!
If you’ve chosen your lot well, I have no doubt that you will be able to get financing on a vehicle. However, in the unlikely event that you can’t, just move on to the next lot on your list.
As long as you shop for a car within a one month period, the repeated credit inquiries are not supposed to hurt your credit score too badly if you have to go several different places.
Mostly I would just encourage you to relax, and have confidence that you can get financed at a major dealership, under slightly higher than normal interest rates (Instead of sky-high sub-prime interest rates).
Just take the time to get prepared, and ask questions. It really is easier than you think!
Before I bought my last car used, I took these same steps, and I found two major dealerships willing to help me finance a car. So, it’s definitely possible, and you can do it too!
Have a question? Leave me a comment below!