Can I Get a Car Loan After Bankruptcy?

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Getting approved for a car loan after declaring bankruptcy can be a challenge, but it’s not impossible.
If you’ve declared bankruptcy then you’re probably having trouble with your credit—which can make it difficult to get a car loan. But with a little work to rebuild your credit, save for a down payment, and comparison shop, you can get a loan after bankruptcy.
To help you through the process, the car insurance broker and loan comparison app Jerry is diving deep into how bankruptcy can affect your ability to get a loan and what you can do to get that much-needed car.
Here’s what you need to know about getting a post-bankruptcy car loan.
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Getting a car loan after bankruptcy

Your ability to get a loan depends on the type of bankruptcy you have filed and how much time has passed since then.

After Chapter 7 bankruptcy

A Chapter 7 bankruptcy is a liquidation of your assets in exchange for a discharging of debt. This means you are giving up non-exempt assets to walk away from the debt associated with them. The court sells these assets to settle your debts.
This type of bankruptcy can affect your credit for up to 10 years after filing.

After Chapter 13 bankruptcy

In a Chapter 13 bankruptcy, you still repay your debts—but the bankruptcy filing allows you to restructure your debt payments and create a new plan in conjunction with the court. The payment plan is usually a fixed weekly amount you owe until your debts are paid off. Full repayment of your debts under Chapter 13 bankruptcy usually takes three to five years.
Unlike with a Chapter 7 filing, a Chapter 13 filing allows you to keep your assets.
A Chapter 13 bankruptcy can affect your credit scores for up to seven years after filing.

Potential roadblocks to getting a car loan after bankruptcy

You’ve declared bankruptcy and now you’re trying to rebuild your finances. Having access to a vehicle is often a big part of this. So what now?
Here are a few issues you may encounter when trying to get a car loan.

Credit score

The biggest issue will be your credit score. Bankruptcy can be detrimental to your credit score, and it will likely be much lower after your filing.
If you had a strong credit score, bankruptcy will lead to a huge dip in your score. But if your credit was weak to begin with, the change may be minimal.
The lower your credit score, the harder it will be to get a car loan.

Difficulty getting approved

Due to your low credit score, it may be difficult to get approved for a loan. This is because lenders will consider it a financial risk to lend you money—they’ll be worried about your ability to pay them back.
There are institutions that work specifically with people who have low credit or have declared bankruptcy. These are known as "guaranteed lenders" since they won’t check your credit and it’s guaranteed that you’ll get a loan.
Be cautious if you’re considering a loan from a guaranteed lender. It might help you get a vehicle in a time of need, but these institutions charge high interest rates, which can leave you with debts higher than the value of the vehicle.
If you want to compare car loans to find the best terms, Jerry’s loan comparison service can tackle all the hard work so that you don’t have to.
Key Takeaway A low credit score can make it difficult to go approved for a car loan.

High interest rates

If you do get approved for a loan, your low credit score and history of bankruptcy may lead to very high interest rates. Interest rates are the amount a lender charges for use of their assets. Think of it like a rental fee for the use of their vehicle.
The higher the interest rates, the more you’re paying each month (and the more your loan adds up to at the end of the term). It’s something to be wary of after emerging from bankruptcy, since it can lead to further debt and more issues down the road.
Always make sure you can afford the monthly payments before signing any loan.

How to get a car loan after bankruptcy

Getting a car loan after bankruptcy can be difficult and stressful. But there are ways to be prepared and improve your chances of getting the right loan for you.

Check your credit

First, check your credit score. This will give you a baseline knowledge of what types of loans and interest rates you can expect to get. The higher your credit score, the better chance you have of getting a loan.
Many consumer credit bureaus offer free annual credit reports. Knowing your score will help you make educated decisions to help you get the right car loan. While there is no minimum credit score for an auto loan, lower scores make the process more difficult.

Rebuild your credit

If you have a low credit score, don’t panic. While it can take time and discipline, there are plenty of ways to rebuild your credit to help you get a car loan at a satisfactory interest rate.
Here are some things that can help you improve your credit score:
  • Pay your bills on time
  • Make frequent bill payments
  • Use a secured credit card
  • Become an authorized user of a friend’s credit card
If you’re still struggling to get your credit up, consider asking a friend or family member to cosign the loan. A cosigner with a higher credit score can help you get approved—sometimes with a lower interest rate.
Key Takeaway Building credit can take time, but it’s crucial for getting a car loan.

Save for a down payment

A down payment is money you pay upfront on the vehicle you’re buying, reducing the amount you need to borrow. While not always required when getting a loan, a down payment can raise your chances of getting approved and lower your interest rate.
Most down payments are 20% of the total value of the car, but this can change depending on your financial situation and the type of loan you’re looking for.

Comparison shop with Jerry

Once you’re ready to get shopping, turn to Jerry to ensure you get the best possible auto loan offer. Sign-up takes less than a minute and then Jerry allows you to compare rates in seconds.
And once you’re ready for car insurance for your new ride, Jerry can help you with that, too. After providing you with a comprehensive cross-analysis of the best policies across providers, Jerry will handle the phone calls, paperwork, and renewals for your top pick so that you don’t have to. So why do all that extra work when Jerry can do it better?
" Wow! Just tried Jerry after being frustrated with my current insurance company, which I’ve been loyal to with little to show for it. Within minutes I had quotes, made adjustments, and initiated a request for a final price. Within the half hour they handled canceling my last policy and had me set up with my new policy. Saving almost $1,000 a year now with better policy than before!" —Jerry user
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FAQs

How hard is it to get a car loan after bankruptcy?

It can be difficult to get a car loan after bankruptcy, but it’s far from impossible. Working on your credit and saving up a down payment are good ways to get approved—but beware of high interest rates.
Use Jerry to compare car loans and find the right one for you.

Can I buy a car after Chapter 7 bankruptcy?

Yes, you can buy a car after Chapter 7 bankruptcy.
If you have the cash to buy the vehicle outright, then there is no need to wait or worry. If you need a loan, your best bet is to work on your credit score before applying for any loans—you’ll have a better chance of getting approved and you’ll get more favorable loan terms.
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