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Declaring bankruptcy doesn’t have to put the breaks on buying yourself a car. You don’t have to wait 7 to 10 years, either. While you rebuild your credit score, using techniques Debt.com can teach you, there are three options you can explore.
First, consult your own bank or credit union. If you’ve done business with them for a while, a bankruptcy isn’t a death sentence. They’ve known you for a long time and they’ll work with you. Second, you can try bad credit auto lenders. They’ll charge you more, but they are a legitimate way to get a new set of wheels.
Third, look into swap leasing. That’s the fancy way of saying you took over someone’s lease. Just be careful and read the terms and conditions and make sure you’re not getting hit with extra fees. There’s a lot more you can do. Check our Debt.com for those tips and more. Debt.com can literally put you on the road to financial freedom.
You might think that making a major car purchase immediately after a bankruptcy filing is impossible. While it’s true you may not head out the next day to get a new set of wheels, you also don’t need to wait the 7-10 years. Although bankruptcy will still show up on your credit that long, the “weight” of the penalty decreases over time. What’s more, you can offset the damage of that penalty by taking certain actions now. So, buying a car after bankruptcy is possible, even within six months of your final discharge date.
Once your bankruptcy is complete, you’ll want to take steps to rebuild your credit before you start making major purchases. In an ideal world, you can recover to a good credit score before you start taking out big loans like a new auto loan or a mortgage. However, if you need a car to get to work and get things done, then you may not have time to wait around.
Fact: In general, steps you take to rebuild your credit take about 6 months before you start to see a positive impact on your score.
So here is what you can do to get on the road quickly…
First, you need to take steps to bump up your credit score as much as possible before you apply for your new loan. If you don’t have time to wait so you can take some steps to boost your score, then you at least need to make sure mistakes on your credit report aren’t making your credit score even worse than it needs to be.
So at a bare minimum, takes steps to repair your credit. If you have the means, a credit repair service is almost always a better option than trying to do DIY credit repair on your own. You save time and are more like to be successful than if you try to do it on your own.
This helps you to maximize your credit score as much as possible before you apply for a loan. Remember, better credit not only means that it’s easier to get approved. You also get a better interest rate, which means less interest paid over the life of your loan.
Directly after your bankruptcy, most lenders won’t even consider lending to you for something as big as an auto loan (although they’re more flexible on auto loans than they would be for a mortgage). But just because lenders are wary of you, it doesn’t mean that you can’t get financing anywhere. You just have to look into options that are specifically tailored to people in your situation.
Here are some of the places you’ll want to look first:
The last thing you want to do when you just get out of bankruptcy is to take out a loan that’s bad for the budget. Putting your finances into a tailspin just to get a car is a recipe for disaster. So, you need to take as many steps as you can to get the best terms possible.
These tips can help you get better terms on your loan, for lower monthly payments and less interest paid over the life of your loan.
If the accounts included in your filing are not all up-to-date, then you need to go through credit repair to correct all of the linger negative information. This will ensure you have the best credit possible when you apply for a new loan or lease.
Now, Chapter 13 bankruptcy is slightly different. This filing can take up to 5 years to complete the court-ordered repayment plan. So, you might get into a situation where you need a car. In this case, you must contact your court-appointed trustee to get permission. As long as you show that the purchase is necessary and within reason, they may grant your request.
That being said, just because you can buy a car, it doesn’t mean you should. Ideally, you should at least repair your credit first. You should check your credit reports to make sure all the accounts included in your bankruptcy are closed. Otherwise, you may face even more credit score damage than just the bankruptcy. Credit repair takes about 30 days to complete. So, at the least, you should wait a month and repair your credit before you apply for a new auto loan.
Ideally, you should at least wait about six months before you apply for an auto loan. That gives you time to repair your credit and rebuild credit, too. You make payments on any loans you have left to build a positive credit history. If possible, you can get a secured credit card to build more credit history faster. Since credit history is the biggest factor used to calculate your credit score, six months of payments can really help to boost your score. As a result, you’ll get a better interest rate and better terms on the loan.
Another consideration is how much car you buy and how you file. If you file for Chapter 7 bankruptcy, then the court liquidates your assets in exchange for discharging your debt. Vehicles are protected up to a certain equity value. So, if you buy a luxury car, it’s unlikely you’d be able to keep it from liquidation. In this case, you may be better off filing for Chapter 13 to avoid liquidation.
Article last modified on May 15, 2019. Published by Debt.com, LLC . Mobile users may also access the AMP Version: How to Buy a Car After Bankruptcy - AMP.