Bankruptcy is a drastic way to get out of debt because it releases you from some or most of your bills, depending on which type you file, but it also stays on your credit bureau records for a decade, according to the Federal Trade Commission. Lenders such as car loan providers are less likely to give you credit when you have a bankruptcy on your records.
Rebuilding Credit
Bankruptcy does not keep you from getting new credit forever, but it takes time to re-establish your finances so you can qualify for larger loans, like automotive financing. Maintain steady employment and get smaller loans first, Bankrate.com columnist Tara Baukus Mello advises. Open a secured credit card account if banks refuse to give you a traditional card. The secured account requires a bank deposit to guarantee payment of your credit line. Make every payment promptly on your new accounts to show potential car loan providers that you are serious about rebuilding your credit.
Other Factors
Raise your chance of qualifying for a post-bankruptcy car loan by saving up the largest possible down payment. This reduces the lender's risk because it brings down the amount of money you need to borrow, Baukus Mello advises. An auto loan is a form of secured credit because the creditor can seize your car for non-payment and sell it to recoup some of the loan balance. The lender has a better chance of covering most or all of the owed balance when you borrow a low amount.
Refinancing
You are likely to get stuck with a high interest rate on your post-bankruptcy car loan because you are labeled as a sub-prime buyer. The high rate costs you hundreds of dollars over time, so Warren Clarke of the Edmunds automotive website recommends refinancing your loan at better terms after two to three years of rebuilding a good credit rating. Check with your credit union, bank and online lenders for financing at better terms.
Time Frame
Bankruptcy's effects do not last forever. The impact on your credit diminishes within several years, even though the bankruptcy still appears on your credit reports, Baukus Mello explains. Lenders focus most heavily on your recent account activity, so pay your bills on time and check your Experian, TransUnion and Equifax reports for potentially harmful mistakes. You get free report copies yearly from AnnualCreditReport.com, the FTC advises, and you have a right to to dispute mistakes and get erroneous information removed.
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