Lenders in general have tightened up their credit criteria, yet the sub prime market is still eager to sell high interest loans to people with bad credit. It is perfectly possible to leave the bankruptcy court and apply for credit after a chapter 7 bankruptcy. Those constrained by the repayment terms of other bankruptcies such as chapter 11, must however bide their time until their previous credit obligations are satisfied.
The best advice available for those who have been declared bankrupt is to work to improve their credit history as soon as possible. Although the bankruptcy itself will remain on credit reports for ten years, it loses significance once a pattern of responsible use of credit is established. Obtaining either a secured credit card or a car loan are the preferred methods of re-establishing credit.
Before actually searching for a car loan after bankruptcy it is wise to check that the credit reports have had all credit obligations removed which were discharged by the bankruptcy. Credit bureaus must remove any open accounts and mark them as included in bankruptcy. This will help to improve credit somewhat and make lenders more eager to deal with bankrupts.
Sub prime lenders often specialise in car loans for bankrupts and searching on the internet will provide a host of companies offering loans. Companies such as myAutoloan.com., Carloan and capitalautoloan.com., are all competing for business. Naturally their interest rates will be far higher than those available to borrowers who pose less risk.
It still pays to comparison shop for a loan as not all rates and terms are equal. If the borrower can provide a good down payment, this will help to secure loan approval. The lender will most likely offer a secured loan with the car as collateral. Default can lead to the lender legally seizing the car. It is important that an affordable loan is obtained as a car repossession on top of a bankruptcy will create more negatives on credit reports.
When a car loan is paid responsibly it will help to re-establish credit. With that aim in mind one should think ahead and consider the possibility of re-financing to a more competitive interest rate once credit history improves. Thus it becomes important to check for any penalty clauses in the loan which may penalise any early loan redemption. Other things to pay attention to are fees applied by the lender. What may appear to be the best interest rate deal may cost more than a higher rate with lower fees applied.
Although there is nothing to stop those who have filed for bankruptcy applying for a car loan, it makes financial sense to ensure that personal finances are in good order before doing so. Obtaining a car loan can work to ones credit advantage, but only if timely payments are met.