CBS News has a new article discussing the purchase of a car after you have filed bankruptcy. It very insightful on going through the steps to getting a decent auto loan.
In my experience, our clients who were able to get the best rates were able to do the following:
1. Make all payments to build back to a good credit history after your bankruptcy. If you have installment payment agreements – student loans, furniture lease to own, an older car loan – making payments on these are significantly important to rebuilding your credit.
If you take on a secured credit card after your bankruptcy has concluded, make the payment every month. Showing that you can consistently make payments on time is very important for future lenders.
2. If you can get a co-signer with a good credit score, doing so can dramatically change the interest rate. When you have a co-signer, the debt and repayment history will be listed on both reports. If you do not make the payments, your co-signer will suffer. But if payments are made timely, both reports benefit.
While we typically advise clients away from co-signing for other individuals, close family members who are already co-dependent and have the ability to follow up to make sure payments are made are ideal candidates – such as spouses or parents/children that live together.
3. Contact your credit union. If you have been with your credit union for over a year, and it has been more than a year after you filed your bankruptcy, you may qualify for a loan with a much better interest rate than you would with dealer recommended lenders. Credit unions have a great history of keeping a personal relationship with their members and helping in times of need and rebuilding.
These are three of our tips to helping rebuild credit and obtain vehicle loans after your bankruptcy filing. For more tips, see CBS News’ piece.
Buying a car can feel stressful enough, but when you have been through bankruptcy it may feel downright terrifying. No matter what the circumstances that led to your filing — large medical bills or a job loss, for example — you probably feel embarrassed and afraid that no one’s going to want to give you the time of day, much less a decent loan.
“The most important thing to know is that you do have options,” says Phil Reed, senior consumer advice editor for the car buying platform Edmunds.com. He says lenders are interested in working with borrowers who are recovering from financial problems, and in fact some dealerships are eager to sell them a car. “You shouldn’t assume that no one will talk with you and that you have to take whatever someone will give you,” he says.
Here’s how to get a car loan after bankruptcy, step-by-step. (By the way, this advice also applies to someone in the process of a Chapter 13 bankruptcy which usually takes five years to complete. The difference there is that you need to talk with your attorney because you will likely need permission to take on new debt while in a repayment plan.)
1. Get your credit reports and credit scores
Yeah, checking your credit probably feels a little like pulling a bandage off a big gaping wound. It’s not going to be pretty. But the lender is going to check your credit, so you might as well know what they are going to see. Besides, it’s always a good idea to review your reports after bankruptcy because mistakes are not uncommon.
You can get your free annual credit reports from AnnualCreditReport.com and you can get a free credit report summary from Credit.com that explains how lenders are likely to view your information. Although the lender will pull a customized credit score that likely differs from the one you see, it will still give you an idea of where you stand in general.
Pay particular attention to what the report says about previous auto loans, since those are often more heavily weighted in the credit scoring models used by auto lenders. Positive on-time car loan payments reported during and after bankruptcy can be helpful.
Connecticut bankruptcy attorney Eugene Melchionne suggests asking yourself the following questions: “Was there a previous car loan involved in the bankruptcy? Was that car loan reaffirmed?” (When you reaffirm the loan you agree to continue to pay the loan balance rather than wiping it out.) “If the loan is reaffirmed, then the tradeline (account) should be showing up on the credit report.”
If you did not reaffirm a loan on a car you held onto in bankruptcy, then the account probably won’t be on your credit reports, even if you have continued to make payments. “In that case, I have the borrower go the dealer/lender prepared with proof of post-bankruptcy payments to create the history,” Melchionne says.
2. Put together a down payment
Hopefully wiping out debt in bankruptcy improved your cash flow enough that you can save some money for a down payment. “I tell my clients to plan on living an entire year on a cash-only basis and build up savings before getting back into the credit game,” says Melchionne. The larger your down payment, the less risk your lender is taking. After all, they also have your vehicle as collateral. Need a set of wheels right away but short on cash? A trade-in can help toward a down payment, and you may be able to get more cash for your current vehicle if you sell it yourself.
CBS News: http://www.cbsnews.com/news/how-to-get-a-car-loan-after-bankruptcy/
