Whether you are planning on filing bankruptcy or have already, you should understand that this does not mean your life is ruined forever. Filing bankruptcy can be a scary step but it’s actually designed to help people who are having financial difficulties to turn things around and start over. One of the biggest concerns for Canadians is after bankruptcy car loans.
How Long After A Bankruptcy Can I Apply For A Car Loan?
Your bankruptcy will stay on your credit report for 6 years but that does not mean you cannot apply for a line of credit. It’s very important during those years you rebuild your credit standing by applying and faithfully paying back any borrowed money. It’s not likely you will be approved for a car loan during that time unless you have significant assets to secure the loan. Once the 6 years have expired, it’s possible you can apply and get a car loan.
Finding The Best Car Loans After Bankruptcy
It can be somewhat trying to find the best car loans after bankruptcy. Conservative institutions, such as banks, will probably not want to lend you money for a car loan or would charge an enormous interest rate. You can apply for a car loan through the dealership but be prepared to have a very high-interest rate.
If you can prove you have an income that can support payments on a car loan, dealerships will work with you to secure the money. The downside, the amount they will offer will probably be less vs if a credit score that is great. Chances are, you will be approved for $10,000, not $40,000.
Don’t despair, there are alternatives for securing a car loan without going through a standard application. There are dealerships that work with lending companies who specialize in cases where customers are trying to recover from bankruptcy. These companies will look past your credit score and examine your overall financial circumstances. They will take into consideration your income, your most recent payment history, the reasons for filing bankruptcy, and credit score then offer financing based on the information they have collected.
First And Foremost – Improve Your Credit Score
It’s really very important you start working on improving your credit score if you want to be approved for a car loan. Even though a bankruptcy will stay with you for 6 years, you can start building your credit back up which will be acknowledged by financial institutions. Here are the steps you should take to turn things around:
- Apply for a secured credit card, use it on a regular basis, and pay off the balance, on time, every
- Always pay your utility bill on time.
- Make sure you use less than 35% of your credit limit.
- Do Not get a number of credit cards at the same time.
You should work to save up as much as possible for a decent down payment for a car loan. If you can offer a larger down payment, it will show lenders you have room in your budget for putting money in your savings account and still make your car payments.
Another important step, try to increase your income as much as you can. A good income will show lenders you can afford monthly payments on a car.
Beware Of Predatory Loan Terms
There is no doubt, applying for any form of credit after a bankruptcy can be difficult and complicated. Along the way, there will be times you will be turned down by quite a few lenders. Due to the fact that you have gone through a bankruptcy, you will be targeted by predatory lenders and you need to keep your eyes open for their shady deals. Companies that claim they can offer you a good interest rate even though your credit is bad, will never come through. When researching a company as a potential lender, be sure to do your homework, read their reviews online along with complaints that have been posted.
Should you be offered a loan from a company that specializes in lending to Canadians that have gone through a bankruptcy, be very careful to READ ALL THE FINE PRINT – all the way to the end! Make sure you read exactly what they are offering as an interest rate, is it OK or extremely high?
People with excellent credit will qualify for a car loan rate between 0.00% to 6.00% but reports have shown that anyone with bad credit will be looking at high-interest rates between 30% to 60%. Even if you believe these rates are extremely high, payday lenders will lend money to customers with interest rates that are in the triple digits! Stay as far away from these high-interest companies as you possibly can.
Other Things To Take Into Consideration When Applying For A Car Loan
Always Read The Fine Print:
Once you know what your interest rate will be, you should pay very close attention to the terms of the loan, especially payment frequency, and whether you will be able to refinance or pay off the loan ahead of time. It’s critical you understand whether you can afford this loan and the payment frequency will play a very big role. Check and double-check whether your payments will be monthly, bi-weekly, or weekly to determine if this loan is even feasible.
Early Payoff And Refinancing
Before signing on the dotted line, make sure you are able to refinance the loan or pay it down ahead of time. Keep in mind, over the next year or two, your credit might drastically improve so you can qualify for a much better interest rate.
Reporting To The Credit Agencies
You should check regularly that your car loan is being reported to one of Canada’s credit reporting agencies Equifax and Transunion. There are many dealerships that don’t make reports to these agencies but if you are making your payments on time, every month, you want this information on your credit report to increase your credit score.
Applying for a car loan after a bankruptcy can be challenging but that’s only temporary. Starting off, you might have to keep your expectations at bay. But if you keep up your payments even if the interest is high, eventually your credit score is going to improve and you will be on your way to a much better financial future!