After your bankruptcy is discharged, you will likely find your credit rating is less than ideal. In fact, before filing bankruptcy, your credit was probably not the greatest either. The good news though is that now you have a clean slate and can take advantage of a fresh start. The downfall of filing bankruptcy, is that in the process of rebuilding your credit, you will likely run into situations that you may not have anticipated. One of those situations may be having to purchase a car.
If you have a car, it is almost always best to hold off on purchasing another one or a newer one until you have no choice, simply because immediately after filing bankruptcy, the loans and offers you will be approved for will include extra fees and large interest rates. There are no doubt numerous organizations and creditors that would be more than happy to provide you with a loan that includes not-so-great terms. One reason of course is that they know you cannot file bankruptcy on them because you have just filed bankruptcy and will not be able to do it again for at least several years.
Finding someone to approve a car loan after bankruptcy is a fairly easy task. Finding a loan with a reasonable APR is a different story. That being said, you could actually get a car loan in as little as a few months after filing bankruptcy, however, the APR could also be around 15-20%.
In order to get a car loan on better terms, you may want to wait a couple years. During this time, you can work on keeping your credit clean and even establishing a positive credit history with a credit card. If you have a relationship with your bank or credit union, you may also want to check and see what kind of loan they would offer you as they may be more inclined to work with someone they already have a history with.
Car lenders will also look into your work history and how long you have been at your job and a stable residency history. This means that if you have just recently moved or have been unemployed, you will have a more difficult time obtaining a reasonable auto loan. If you wait a couple years and establish employment and residency history, it will work more in your favor along with the positive credit history you have been working on.
Unfortunately, there are times when you absolutely have to buy a car before a couple years have passed and sometimes obtaining a loan on a car with an extremely high interest rate, can help build your credit. The types of credit used (car loans, mortgages, credit cards) make up 10% of your FICO score, meaning you need to have a mixture of different forms of credit in order to rebuild your credit.
If you have to purchase a car and can’t wait, the car loan (if paid according to its terms) can actually help rebuild your credit, even with a high interest rate. Make sure however, that you are able to make the payments on the loan or you’ll end up defaulting. Also be prepared to have a larger down payment on hand as many lenders will require it before approving a loan. It may be helpful also if you have someone with a favorable credit score that is willing to co-sign for you. Although it may be difficult obtaining a co-signer after filing bankruptcy, having one could result in better terms. Keep in mind that if you default on the car loan with a co-signer, the co-signer will either have to pay your loan or will be stuck with the default on their credit report as well. You would not only be ruining the fresh start that bankruptcy provided you, but you will be ruining someone else’s credit as well.
It is not impossible to obtain credit after filing bankruptcy. The key is to make financially sound decisions that will keep you on the path to repairing your credit.