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Published On: Fri, Oct 26th, 2018

What to Expect from a Car Loan Following Bankruptcy

There are few things in life harder than filing for bankruptcy. Watching the financial life, you’ve worked so hard for evaporate is painful in many ways. This is especially true because bankruptcy often isn’t due to any gross negligence on the part of the filer. About half of people who go into bankruptcy do so because of medical debt.

photo supplied/ bankruptcydocumentslibrary.com/

But regardless of your reasons, you want to get your life back on track after going through bankruptcy. Here’s what to expect from a car loan following bankruptcy.

Saving for a Down Payment Is Important

After completing Chapter 7 bankruptcy, where debts are forgiven in exchange for all qualifying assets, many people will start accumulating cash if they still have a reliable source of income. Someone in this position will have little, or zero, outstanding debt. This isn’t always the case in Chapter 13 bankruptcy, which allows filers to retain some of their assets if they continue paying interest to lenders.

Most people fall into the Chapter 7 category. If you’re in this situation, you should try to save some of that cash in order to put together a down payment for a vehicle. The more you can offer the lender upfront, the more likely they’ll want to work with you, as this lowers their inherent risk.

Not All Lenders Are the Same

There are a few reasons why you need to take care before you sign any paperwork for a car loan after bankruptcy. You don’t want to end up in a dire financial situation again right after escaping one. Unfortunately, this happens to people who think they’re getting a decent deal but are actually being ripped off by the lender.

When you have less-than-stellar credit, you aren’t going to get the best interest rates on your car loan. Lenders will almost always require higher payments on loans that they perceive as riskier. However, there can often be large differences between annual percentage rates (APR) of different lenders. A higher rate can end up costing your hundreds, if not thousands, more over the course of the loan. But it’s also important to look out for hidden charges or fees built into a contract. Make sure to check TrustPilot and other online reviews, as well as the Better Business Bureau, before locking in with a lender.

Have Modest Expectations for What You Can Afford

You shouldn’t expect to walk into a dealership and have them to hand you the keys to a new luxury car if you’ve just gone through bankruptcy. An after-bankruptcy car loan is probably only going to allow you to afford more economical vehicles. Then again, successfully paying off a vehicle will likely improve your credit. Showing lending agencies that you’re reliable is going to open up better opportunities for you in the future.

Paying Your Loan on Time Can Rebuild Your Credit

As stated in the previous paragraph, you can help rebuild your credit by paying off new loans on time. Many people will take a significant hit to their credit scores after bankruptcy. Your score can drop by over 200 points if you previously had a strong credit record. The bankruptcy will stay on your credit record for up to ten years. So, it’s important that you make an effort to improve your credit in whatever ways you can.

Look for Refinancing Opportunities

If you’re able to make consistent repayments on a car loan for a while, try to refinance your loan. Hopefully, your credit score will have gone up some after a year of on-time loan installments. Refinancing with better credit will allow you to pay significantly less over the life of the loan. Keep an eye on your credit score and try applying for lower interest rates down the line.

There’s nothing easy about bankruptcy. It’s a trying time for people emotionally and financially. Still, it’s not the end of the world. A lot of people go through bankruptcy every year, so you aren’t alone..

Author: Kayla Eric

About the Author

- Outside contributors to the Dispatch are always welcome to offer their unique voices, contradictory opinions or presentation of information not included on the site.

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