Bankruptcy harms your credit, especially if you did it recently. It is possible to obtain an auto loan afterwards, although re-establishing yourself first can help you to obtain a better interest rate. Otherwise, arranging funds for a down payment and applying to the right lenders can help you to obtain an auto loan after bankruptcy.
Loan-to-Value Ratio
The vehicle's value, the amount you wish to borrow and your overall credit history and score determine the percentage of your loan-to-value ratio. Good to excellent credit customers may borrow as much as 120 percent of a vehicle's value, whereas poor credit consumers may obtain as low as a 60 percent loan-to-value ratio. For this reason, you may have to put money down toward your loan. The ratio is determined by the lender you apply to, as banks have different lending criteria and approval guidelines.
Budgeting
Save money for a down payment or determine how much you can reasonably afford to put down with the funds you have. Also, use an auto loan calculator to determine your monthly payment, which helps you to shop within your means. If your interest rate ends up being high because of scarred credit, you can gauge your borrowing limits. Knowing your price limits can prevent you from pursing a vehicle out of your price range because of desperation or lack of budgeting.
Applying for a Loan
It may prove worthwhile to work with a large dealership for a loan, as many work with various lenders. Your salesperson can send in your credit application to different banks for what is known as a "payment call," which is asking the bank to determine if it would extend a loan to you. The bank will send back terms and conditions of loan approval for your consideration. Or, you can apply to a lender of your choosing. It may be best to apply to a bank whose loan you did not include in your bankruptcy. If you kept a car or motorcycle loan and paid it off despite the bankruptcy, the lender may decide to extend you a loan again.
Subprime Financing
If you cannot obtain traditional financing, you can apply to a subprime lender, which is a bank that specializes in high-risk loans. Subprime lenders require money down and offer extremely high interest rates. While this kind of loan may ultimately become your only lending option, be sure to consider your budget and how much you can put down. The payments for a subprime loan are often very high because of interest rates that are more than 20 percent.
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