On average, Canadians owe around $73,500 in debt to banks and other institutions. With so much debt, in some cases, the only way out is to file for bankruptcy. Bankruptcy can help you remove some or even all of your debt, but it certainly isn’t a good thing to have on your credit report.
You might be wondering if you can get a car loan after bankruptcy. While filing for bankruptcy can seriously damage your credit score and make it difficult to get loans in general, there is still a chance that you can get a car loan after bankruptcy. But how?
What should you expect when getting one? How can you make the process of getting a car loan easier? Keep reading and learn more about it below.
What Does Filing for Bankruptcy Do to Your Credit Score?
The first thing you should know about filing for bankruptcy is that it can make your credit score go down quite a lot. More than that, once it appears on your credit report, the quality of your credit report will go down as well. In some cases, bankruptcy can stay on your credit report for as long as 10 years before it finally falls off.
Having a bankruptcy on your credit report is bad for several reasons. The main reason is it shows that you are not very good at handling your debts, especially large amounts of debt. Instead of paying it off, bankruptcy allows you to get rid of your debt partially or completely.
Personal bankruptcy is one of the most common types of bankruptcy, although some may file for bankruptcy if they have a business, especially a small business. Whatever the case, filing for bankruptcy will forgive your debt to a certain extent. In a way, it can help you wipe the slate clean when it comes to your debts.
That way, you can start over and take a better hold of your finances. However, while this is true, you will find that it will be quite difficult to do certain things in the financial world when you have a bankruptcy stuck on your credit report. You might find it difficult to open bank accounts, get apartments, mortgages, and of course, loans.
Again, this is because bankruptcy gives you a bad reputation in the financial world as someone who is incapable of paying off debt. Of course, this may not be entirely true. You may be able to pay off your debts but just not large amounts of debt.
The Details
Whatever the case, bankruptcy will make it generally more difficult for you to get an auto loan. This is especially true for large auto loans for expensive cars. Getting an auto loan isn’t impossible if you have a bankruptcy on your credit report, but there are a few things that you will need to consider.
For one, you should expect the process to be a challenge, especially if the bankruptcy is still relatively fresh on your record. You should also be prepared to get rejected several times by different lenders until you find the right one. You should also be prepared to improve your credit score as much as possible even if the bankruptcy won’t disappear from your report for several years.
After all, just because you filed for bankruptcy doesn’t mean that you should give up entirely on your credit score. Just remember that when looking for a lender for car financing, you will need to keep your expectations in check. You certainly aren’t going to get magically approved for big and expensive car loans with a bankruptcy still on your report.
You might not even be able to qualify for a loan with some auto loan lenders. It will all depend on what kind of lenders you use. Also, the interest rates you get will not be great when you still have a bankruptcy on your record. Again, this is because most lenders will not trust you to pay off your debts on time.
If you do happen to be late when paying off your auto loan, then you’ll have to face a steep interest rate.
What to Expect
The process of applying for an auto loan might take even longer since the lender at hand will need to gather some of your information to make sure that you aren’t a terrible choice for a car loan. But keep in mind that there are lenders who specifically deal with those who have filed for bankruptcy in the past.
There aren’t very many of these lenders, but they certainly exist and they can be very important to you. Because they deal with people with bad credit scores and credit reports, it isn’t a surprise that they offer relatively small loans with high interest rates. While these loans may not be ideal, you will have a much better chance of obtaining them compared to other loans for those who have much better credit scores and reports.
If you really need a car loan right away and can’t wait a number of years for your bankruptcy to fall off your report, then you will need to deal with these lenders. Keep in mind that these lenders can help you quite a lot, so it’s best not to shun them because you think you could do better. With a fresh bankruptcy on your credit report, your options for auto loans will be very limited.
But where should you start when applying for an auto loan after filing for bankruptcy?
Focus On Choosing the Right Lender
Before you even think about applying for any auto loans, you will first need to find a good auto loan lender. This can be quite difficult after filing for bankruptcy. As mentioned before, you should keep your expectations low once you have a bankruptcy on your record.
While you could spend your time going from one lender to another, you will get rejected most of the time. As soon as a lender sees that you have a bankruptcy on your record, you will immediately become an unattractive candidate for a car loan, especially a big car loan for an expensive car. In a way, having a bankruptcy on your record is like bearing a mark of financial shame wherever you go when trying to apply for a loan.
However, that doesn’t mean you’re doomed to be rejected for loans until your bankruptcy finally goes away. You just need to be sure that you choose the right lender in the first place. In fact, if you do manage to get a small car loan, it will be able to help you rebuild your credit quite significantly.
When choosing the right lender and applying for different car loans, you will want to be careful. Applying for loans and then getting rejected will actually harm your credit even more. This is the last thing you want to happen after filing for bankruptcy.
To prevent this from happening, you’ll want to narrow down your list of lenders to those that mainly accept people with low credit scores and those who have filed for bankruptcy before. That way, you’ll have a much better chance of getting approved as long as your credit score isn’t terrible. Before applying for a car loan, you’ll want to see if you can apply for preapproval first.
Understanding Car Loan Preapproval
Preapproval doesn’t mean that you’ll always get accepted for a car loan, but it does mean that you have a better chance than someone who hasn’t been preapproved. The great thing about most preapprovals is that they shouldn’t impact your credit score as much (or at all) compared to a real approval. Most preapproval applications won’t affect your credit score at all.
However, some will affect it to some extent, so you’ll want to be careful if you plan on applying for many loan preapprovals at once. A preapproval doesn’t require as much information as a real car loan application. They just require enough information to determine whether or not you may be a good choice for a car loan.
Getting preapproved for a car loan, of course, is a good sign. But if you are rejected, then you will have some work to do. If you are rejected for a car loan preapproval, then you certainly won’t be accepted when you actually apply for a real car loan.
If this happens to you, you shouldn’t worry too much. This doesn’t mean that it will be impossible for you to ever get a car loan. However, you will need to do some things so that your chances are better in the future.
The main reason why you would be rejected for a car loan preapproval is that there is something wrong with your credit score. Of course, your bankruptcy will play a big part, but other factors on your credit report can also cause problems. If you have made no effort to rebuild your credit after filing for bankruptcy, this is a good reason why you might not be approved for a car loan.
But how can you rebuild your credit after filing for bankruptcy?
How To Improve Your Credit Score Before Applying for Car Loans
Fortunately, there are many ways in which you can improve your credit score even after filing for bankruptcy. The main thing you need to do is make sure that you always pay off any of your remaining debt on time. Filing for bankruptcy makes it seem like you can’t manage any debt at all.
But by paying off any remaining debt, you can increase your credit score by a few points. Of course, you shouldn’t try to get back into huge amounts of debt after filing for bankruptcy. However, you should practice paying off small amounts of debt on your credit card or other lines of credit.
That way, as you pay off your debts on time, your credit score will slowly start to improve. While this obviously won’t give you a perfect credit score, it will certainly help improve your likelihood of getting approved for a car loan. The last thing you should do is give up on your credit score completely after filing for bankruptcy.
The Details
That is the one sure way that you will never get approved for a car loan. Besides paying off your debts on time, another way to improve your credit score is to make sure that your credit utilization is as low as possible. Many people don’t know that using too much credit can seriously damage their credit scores.
Preferably, you should always keep your credit usage at 30% or below. It is even better if you can get it below 20% or even 10%. Whatever the case, using too much of your credit will show that you are unable to moderate how much credit you use and it will make you less of a desirable candidate for car loans.
You also will want to avoid ever being late on your payments. Being late will certainly show that you are not responsible enough to handle any kind of debt or credit. But as long as you pay all your debts on time, you should be in luck and you should have a much better chance of being accepted for a car loan.
All About Getting a Car Loan After Bankruptcy
Getting a car loan after bankruptcy can certainly be a challenge, but it isn’t impossible. Filing for bankruptcy will damage your credit report, but as long as you focus on rebuilding your credit score and you choose the right lender, you shouldn’t have a problem getting a car loan.
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