Bankruptcy is a drastic action, according to the Federal Trade Commission, because it is usually the last option for escaping debt. It can show up in TransUnion, Experian and Equifax credit files for 10 years, but its effects are particularly strong in the first few years. Some creditors avoid recently bankrupt borrowers, but MSN Money financial columnist Liz Pulliam Weston explains that it is possible to get loans shortly after bankruptcy with credit improvement strategies.
Solution
Pulliam Weston advises rebuilding good credit immediately after the bankruptcy. Secured credit cards are a good option because they are easy to get. Banks require a deposit of $300 or more, which is held as security. They issue a card with a credit limit equivalent to that deposit and share account activity details with the credit bureaus. Six months to a year of on-time payments increases the chance of getting a new car loan because lenders see the applicant is making a sincere credit rebuilding effort.
Considerations
The loan approval process can be accelerated by cleaning up credit reports, according to the Cars Direct car buying website. The Federal Trade Commission (FTC) explains that all consumers are entitled to free credit reports at 12 month intervals from annualcreditreport.com. Those who apply for car loans and get turned down also get no-cost copies. There may be invalid negative entries in addition to the bankruptcy. Dispute all mistakes through the web forms provided by each credit bureau. This may improve the credit records enough to qualify for a new car loan, even with the bankruptcy.
Strategies
Lenders are more likely to make new car loans to bankrupt people with large down payments. This reduces the potential loss because it lowers the amount financed and the monthly payments, Cars Direct explains. Car buyers with long-term employment histories have an easier time getting post-bankruptcy loans because they have reliable income.
Alternative
Bankrupt consumers can get immediate new car financing if they find someone with an excellent credit record to co-sign the loan. MSN writer Mary Rowland cautions that co-signers are fully responsible for loans in case of default. Lenders can pursue them if the primary borrower stops paying, and the delinquencies go on their credit reports.
Warning
Beware of dealer financing, which often includes a large mark-up that channels profit to the seller, Edmunds automotive website editor Warren Clarke warns. Talk to other lenders before car shopping, including banks and credit unions, and get a pre-approved loan. A car buyer's current financial institution may give a new car loan shortly after bankruptcy if that person is a long-time customer with otherwise good records. Lenders often charge steep interest rates to recently bankrupt borrowers, but Clarke advises that refinancing is possible in a year or two for people who rebuild their credit.
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