John, 25, is desperate to buy a new car. His financial position has improved due to the new job he got and now he wishes to finance the car partly by cash payment and partly through an auto loan. However, he had filed for bankruptcy earlier, due to his inability to pay loans at that time. Will he be able to achieve his dream of owning a car?
There are many people like John who wish to have their own vehicle. Getting auto loans after filing for bankruptcy is possible if you can satisfy the terms and conditions set by lenders.
Getting Auto Loans After Bankruptcy
Filing for bankruptcy is one of the most difficult decisions in the life of any person. Bankruptcy not only causes us to surrender our assets but it also remains on our credit report for a very long time. A bad credit score in turn makes it very difficult to secure loans at attractive rates of interests.
So, even if you manage to get a loan, it would be at a higher rate of interest, as compared to the rates charged for people who have a high credit score. However, getting an auto loan sanctioned after bankruptcy is easier than applying for a credit card or an unsecured loan, because the creditors will be using the car as collateral. This means that if you do not pay your monthly installments on time, the car will be confiscated by lenders.
If you have filed for bankruptcy earlier and still wish to buy a car by taking a loan, then you can only qualify for bad credit car loans. Such individuals have the option of securing loans from sub-prime auto finance lenders, who will obviously charge a higher rate of interest than normal. This is because you fall in the ‘high risk category’ for these lenders.
However, considering the need of people with a bad credit score buying cars after bankruptcy, the rates of interest are not too high. Apart from sub-prime lenders, there are professional money lenders who will charge a higher rate of interest. They will not conduct a complete background check about your financial situation or stability of income, as done by conventional lenders.
Before you apply for the loan, you need to decide what amount you need and plan things accordingly. You should apply for one, only after calculating what your equated monthly installment will be and after asking yourself whether you are in a position to pay it off comfortably.
Financial planning principles suggest that you should not stretch your finances too much to buy a car, as you can also have other necessities in life. Also, study your credit report carefully before you approach the lenders.
The best way to improve your credit history is by paying off all the loan installments on time. At the time of approval, you will surely be asked why you had to file for bankruptcy earlier. You should prepare a proper answer to this question, as an unsatisfactory one can cut the chances of getting a loan. You should be able to assure your creditors that you are financially well off and have the ability to pay off the loan.