How to Get a Car Loan After Bankruptcy

It is not generally recommended to get a car loan right away after bankruptcy, but sometimes things happen. In 2008 I was driving a 1998 Ford Explorer, which by the way I pretty much adored. It worked perfectly for getting used to driving in the snow and I was able to store tons of junk in it. I also liked feeling big and higher up. I know, these are not features one should look for in a vehicle. It should be obvious I am not a car girl.

This Explorer was in my father’s name, so the payments I was making was not helping my credit. We were also entering the great gas crisis when gas was supposedly going to reach $4 or $5 a gallon. A lot of money went into gas for that Explorer and the mileage was horrid. I started to notice small things going wrong (like the check engine light and other things I have no knowledge of ) and decided I should try to find something else.

What Car Lenders are Looking For:

Credit History -
I had filed bankruptcy in 2006 and had credit cards all in good standing. There were no late payments, judgments or any negatives on my credit report except for the bankruptcy that occurred two years earlier. Lenders look at whether your payments have been made on time, how many are paid off and the number of inquiries on your report.

Employment and Monthly Income

I was employed at a law office for 2 years at the time. I had no other income. The length of time you have been employed reflects stability and whether you are able to pay a loan.

Down Payment

I had a $1,000 down payment from my tax refund. Lenders typically suggest putting down at least 10% of the price of the car for a down payment. If you have a bankruptcy on your report, try to have the highest down payment you can. If you are able to, save up until you have one that is sufficient.
You can still get a loan with a low down payment, but this will sometimes result in a higher interest rate and even owing more on the car than it’s worth. Post bankruptcy filers are already susceptible to higher interest rates from the start.

What I Ended Up With

I went to the car dealership searching for an SUV but quickly found out that I wouldn’t be able to afford one. This was the time right smack before everyone started dumping SUV’s so if I had waited I probably could’ve gotten one cheaper, but then I wouldn’t have had the Explorer paid off. The good think about my timing is that they paid what I owed on the SUV, which was more than it was worth at the time, especially when a few months later no one wanted SUVs.

Instead, I selected a car that was only a year old and asked them to put in a sun roof. That was my only other requirement. I know. Silly. My dad went with me when closing on the car because I wanted him to look at it. After going back and forth with the car dealer with statements like “dude really. I’m a single mom. I cannot pay that monthly payment”, I got the payments down to what I could manage. Before running my credit, I did mention that I had a bankruptcy. I also mentioned that I banked with the local credit union. To my surprise, he came back with a great loan from the credit union with an interest rate of 8.94%. We were all shocked of course but I remember the car salesman saying “I don’t know. For some reason they love you.” And to be honest, after my experience with a different small town bank (and I wasn’t even asking this one for anything) I have to admit I love my credit union right back.

As with the post where I listed the credit cards I have received after my bankruptcy, I will say that situations vary. I do not advise anyone to go through car dealerships that approve you right there regardless of your credit history. You are almost always going to end up with a bad deal and an extremely high interest rate. Waiting, if you can, is always the best way to go. I also learned from this experience to stick with your terms. If your monthly payment cannot be more than 200 or 250 than do not waiver and make sure the car dealership knows that. Yes, you can squeeze in another 50 without starving, but if you don’t have it in the budget, don’t do it.

Also, take your dad. If you don’t know cars you need someone with you that does. If anything, for moral support, but most of all to show the salesman that you aren’t falling for any wonky gadgets. Even with a bankruptcy, my experience with the car dealership went well, and I will return for my next car. You never know, you may find a lender that loves you too.

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