Kentuckians who are contemplating filing a petition in bankruptcy have many questions about life after bankruptcy. One of the most pressing issues is the purchase of an automobile on credit. Contrary to the expectations of many people, a personal bankruptcy does not automatically foreclose the possibility of borrowing money to buy a car.
Nothing in the bankruptcy law prevents a person from borrowing money after the previous debts have been discharged. The most important hurdle is the attitude of potential lenders. The first step in finding a lender is the gathering of credit reports. While the rating is likely to be low, lenders will use the same information, and a borrower will benefit from reviewing credit reports before applying for a loan. If a previous car loan was not reaffirmed during bankruptcy, it is not likely to show up on the credit reports.
A second important step is accumulating enough cash for a down payment. Some experts advise clients to wait one year and to save enough for the down payment before applying for an auto loan. With credit information in hand and a down payment in the bank, a person is able to shop for financing. The goal, according to credit experts, is to obtain approval for a loan before visiting any auto dealerships. Interest rates will vary from lender to lender and will usually be significantly higher than before the bankruptcy.
Once the loan is approved and the car is purchased, payments must be timely. After 6 months or a year of on-time payments, the borrower’s credit scores will have improved and available interest rates will have dropped. Refinancing the original loan becomes a viable option. Because the availability of financing and interest rates vary depending upon an individual’s personal financial situation, a person contemplating bankruptcy and wondering about purchasing an automobile may wish to consult a bankruptcy attorney for advice on financing and the terms of the purchase contract.
Source: CBS Money Watch, “How to get a car loan after bankruptcy,” Gerri Detweiler, accessed on May 6, 2017