The biggest mistake people make is to assume that being declared bankruptcy is the last nail in their financial coffin. In fact, it is still possible to secure a variety of loans even before the 2-year term such rulings affect a credit status even ends. When seeking a car loan after bankruptcy, it is good to know there are options.
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Of course, the available terms are not perfect - but what can be expected after being declared bankrupt? The key factor for those who qualify is that they can get approval despite bankruptcy being on a credit record for up to 10 years.
There is certainly a risk involved for the lenders but they too benefit by the fact that most borrowers coming out of bankruptcy are keen to improve their credit ratings. That means the chances of defaulting on the car loan are much lower.
But what are the key factors of these loans to bear in mind?
Factors That Really Matter
The fact that credit histories matter little in the loan approval process means that lenders pay much more attention to things like income and debt-to-income ratios. Getting a car loan after bankruptcy really just comes down to the same things other loans come down to.
Proving an ability to meet repayments is done by confirming a full-time job and having a large enough income to make repayments comfortably. But securing loan approval despite bankruptcy is more dependent on the debt-to-income ratio, which confirms what is actually affordable.
The ratio sets out a limit of 40% of excess income for repaying the new loan. This means that should $500 excess income exist, that repayments cannot be more than $200. With such a limited percentage, the car loan itself is limited.
Find an Affordable Loan Deal
Applying for a smaller car loan after bankruptcy is an effective way of getting approval, but it is also necessary to find loan deals with the lowest interest rate and best loan terms possible. This inevitably means searching on the internet where online lenders offer tailored deals to bad credit borrowers.
Traditional lenders tend to avoid getting involved with applicants who include bankruptcy in their recent credit history, but online lenders are more open to such things. In fact, getting loan approval despite bankruptcy is a lot more likely with them.
Remember, choosing carefully the lender to apply to increases the chances of approval. But as with all loans, be sure to know the reputation of the lender before committing to a car loan from them. So, consult the BBB website first then make a decision.
Other Factors That Help
There are a few factors when seeking a car loan after bankruptcy that can further aid the cause of securing approval. Since the only issue that really matters is affordability, getting a cosigner to back up the monthly repayments is hugely effective.
However, be sure that the cosigner has an excellent credit history and a good enough income to ensure he or she is accepted by the lenders. With the loan repayments guaranteed, loan approval despite bankruptcy is practically guaranteed too.
Finally, be prepared to make a down payment on the desired car. This lessens the required car loan sum, which lowers the debt and makes it more affordable. The result is to make approval more feasible.