Buying a Car After Bankruptcy

September 15, 2012

Many people contemplating bankruptcy are afraid that they never will be able to obtain a reasonable car loan. Fortunately, this is a common myth that is easily dispelled. In fact, you may apply for a car loan the day after your bankruptcy case is closed. After all, many lenders understand that recent bankruptcy debtors want to re-establish a favorable credit rating, so they are motivated to make on-time payments. Indeed, you may not immediately receive the lowest rates reserved for those with sterling credit, but you can still get a car loan. The key is making sure that opportunistic lenders do not take advantage of you.

This article will highlight several tips to help you get the best deal possible.

Shop around - Having a recent bankruptcy does not mean you have to accept just any loan; especially highest interest rate products. A number of reputable lenders offer loans to people with less than perfect credit. Some lenders even work like mortgage brokers, as they will shop around for the best interest rate for you. Just be mindful of high-pressure tactics and brokers who say that no one will offer you a better rate.

Have a realistic budget - Before shopping for your next car, take time to answer two important questions first: how much can I afford each month, and how long do I want to be attached to the loan? These questions will help you shape a realistic budget, and help you once salespeople try to up-sell you into a car that you may not be able to afford.

Try a larger down payment - As you put more money down initially, your monthly payments will be smaller. This will save you money over the life of the loan. It will also show the lender how committed you are to paying off the loan, and could lead to a lower interest rate. Conversely, buying a car with no money down may have the opposite effect, and you could be subject to higher interest rates.

Explain your situation - Many people don't realize that they can provide a one-page explanation of their bankruptcy on their credit report. This is a unique opportunity to provide lenders with insight (and further documentation) about your circumstances. Of course, lenders want to stay away from people with dubious spending practices, but they are happy to help those who are victims of circumstance. If you sought bankruptcy protection because of an illness or job loss, it is important to explain how your circumstances have changed.

If you have additional questions about how your bankruptcy may affect your ability to obtain a car loan, an experienced bankruptcy attorney can advise you.

Article provided by Glenn & Glenn, LLP
Visit us at www.glennandglenn.com