Getting a Car Loan After Bankruptcy
If you're reading this, then there's a good chance you've recently filed for bankruptcy. Naysayer's may have tried to convince you that filing for bankruptcy means you're going to have bad credit for the next seven years. Your attorney, friends, or family may all be telling you how bad your life is going to be because of your bankruptcy.
These warnings are FALSE.
If your bankruptcy is now complete, you can re-establish your credit in one year. By using the credit system you can fix your credit and restore your credit score quickly and easily.
1. Put you house in order.
You want to create a budget and make a savings plan. It's very important you come up with a savings plan that you're going to follow. You also need to make sure that any creditors who send you collection notices are taken care of right away. You can't ignore these notices just because they're for debt that was included in your bankruptcy. Contact the creditor and make sure they know so they don't file a new collection and stop the re-establishment process. Last, make sure you know why you filed for bankruptcy and how you're going to make sure it doesn't happen again.
2. Start hoarding.
This is the hardest part -- you need to save up a few thousand dollars. Mostly, this money will be your emergency fund that you can use to make payments if you have a problem. But some of this money will be used to get a secured credit card and for a vehicle down payment. You also need to keep all of your important financial documents like pay stubs, bank statements, bills, etc., because a creditor may ask for copies in the future.
3. Apply for a secured credit card.
Once you're able to save up a little bit of cash it's time to get a secured credit card. Secured credit cards are credit cards secured by a cash deposit, with the amount of your deposit being the amount of available credit. The key to these cards is to use them only once and then destroy them. When your first bill comes, pay the card in full. By doing this you'll trick the credit reporting agencies into giving you credit for making payments in full every month, even though you've only used the card once. By destroying the card, you make sure your balance stays at zero.
4. Buy a car.
I know that the idea of buying a cheap used car (2-4 years old, less than $10k) may not get your motor running, but remember the goal here is to re-establish quickly. You want to make a few payments on this car (6 to 12) and then trade it in for something nicer. Just make sure you have a down payment before you go shopping.
5. More credit cards.
If you have a secured credit card (or two) for a few months and your car payment has been paid a couple of times you probably qualify for a regular, unsecured credit card. Make sure to apply for a card from the big names like Visa, MasterCard, or Discover. Whatever card you get, it's important that there is no annual fee. You should also try to get a credit card from your local credit union. If your application is denied, that's OK. Most denials are based on computer analysis which is often incorrect. Simply call the credit card company and ask them why you were denied and what you can do to get approved. Often times your denial will be overturned.
6. You can now get the car you want.
You've done all the steps, a year or so has passed, and your credit is officially re-established. Trade in that cheap car you bought in step four (unless you like it of course) and get something that you want with the benefit of having good credit.
With all of these steps, it?s important to remember a couple of things. First, save money every month. Saving money is a life skill that everyone should have. Second, remember what caused your bankruptcy and don?t let it happen again. Use a budget, avoid impulse purchases, and make sure that you can pay all of your bills even if a major catastrophe occurs.
Author Jason Lancaster has nearly 10 years of knowledge & experience in the auto industry. He's helped hundreds of people get a car loan after bankruptcy and has knowledge & experience working with creditors for bankruptcy car loans.
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