One of the things that people considering filing for bankruptcy are most worried about is what is going to happen to their car. In other articles I talk about the different options you have to both keep your car or to abandon it if it is upside down (you owe more than it is worth). Today I’ll be writing about how to get a good car loan after bankruptcy.
The first thing you want to make sure you have in place is a solid income with your W2 statement. If you have no income or very irregular income you are going to have a hard time getting a car loan with a relatively low interest rate. You will probably get targeted at 28% interest if your income is not in place – and, of course – the higher the income, the better! It’s important to get a solid income/job in place BEFORE you file for bankruptcy. I talk about that in other articles.
Why People Who Just Got Discharged Are a Great Catch for a Lender!
Next, you need to realize that if you have an income and you just got discharged from bankruptcy, you are actually a very good person to lend to. Why? Well, first of all, you can’t file for bankruptcy again for many years! This results in the ability of the lender to be able to hound you if you don’t pay! That means you should only take out a car loan if absolutely necessary. You should never take out a car loan at 10%+ rates. You should also make sure you pay off any car loan as fast as possible.
Now, the most important thing to do to get a low rate on a car loan is to go to the right dealer to buy a car! Remember, that the best way to get a car after bankruptcy is to pay $1,000-$3,000 for a car in cash for an older car that you can find on craigslist. You should be able to save up that much money before you file for bankruptcy at least. Many states allow you to keep much more than that. In California, you can keep around $28,000! More than enough to pay for a car if you need one.
Choosing a Car Brand After Your Bankruptcy
Now, the right place to go is to a reputable mainstream car dealer. My current picks are Hyundai or Ford. Both of these brands have reliable cars that can be purchased for quite a bit cheaper on the used market than other brands such as Toyota, Honda, or Subaru. Your goal is to get as high quality of a car as possible for the cheapest price, and Hyundai and Ford are good brands to do this at this time.
You want to go to their used car area and choose the best car you can find for $10,000-$17,000. You are not buying a new car at the dealership. Next, you’ll be stuck going through their financing team. This can be a real struggle for the uninformed and vulnerable who just filed for bankruptcy! The good news is that generally they will try to get anyone approved that they can, because it means a sale and more money for the dealership. The dealership will definitely try as hard as they can to get you approved.
Getting Financed by the Car Dealer After Bankruptcy
The other good news is they will run your info by as many possible lenders that they can. This gives you a lot of options. Also keep in mind that they will probably want you to take a 72 month loan. This is OK, as your goal will be to pay the car off as fast as possible especially since your interest rate still won’t be very good. Even 5.9% is not a rate I want to be paying for very long!
You should be able to get a loan under 8% by shopping around for rates if you have a solid W2 income. This is a high rate but it’s a lot better than the loan sharks who want to trap you into 25%+ rates. Never take out a loan like that. You filed bankruptcy to get out of debt, not to get destroyed by it again!
To wrap up, if you absolutely must get a loan for a car after bankruptcy, know that you can definitely still get a very reasonable rate. The goal is then to pay it off as quickly as possible. I paid my 5.9% car loan off in about 20 months – instead of the 72 they wanted me to pay for! That makes the interest hit not too hard – and now I have a paid off car that is nearly new and in great condition and should last for many more years.