Bankruptcy can be a very trying experience for anyone that has ever had to go through it. Your financial reputation is battered. Unfortunately, it will take a long time before you are looked upon as a credit worthy borrower by some lenders. This can make obtaining certain types of credit more difficult. For instance a mortgage right out of bankruptcy at good terms can be very difficult to acquire. However, there is one area where declaring bankruptcy is not a game changer and that is in getting auto loan. Getting auto loans after bankruptcy is seen as less difficult than getting mortgage for the simple reason that the lender is, in absolute terms, risking a lot less when they approve you for an auto loan. Nevertheless there are a number of strategies that you can use to get the best auto loan after bankruptcy. This article will examine the best way to obtain car financing in a financially turbulent time.

Getting auto loans after bankruptcy

One of the things that, unfortunately, has changed is that lenders are much tighter with the purse strings. After the financial meltown of 2009 and the subsequent period of instability the market has changed drastically. Therefore, understanding how auto loans work in times such as these is critical to positioning yourself for the best terms possible.

Let's say that you have recently declared bankruptcy yet need a new car. Obviously the best option would be for you to purchase a new car with cash and avoid financing all together. But if you are just emerging from a recent bankruptcy it is highly unlikely that you have several thousands of dollars in cash saved up for an auto purchase. Therefore, an auto loan becomes a necessary evil.

Here are the steps that you need to take when obtaining car loans after bankruptcy:

1. First you will need to contact one of the three major credit bureaus and get a copy of your most recent credit report. It is likely that your overall profile will be poor and that your FICO score will be trashed. But that is okay. What you need to do is check to see what accounts you have had in the most previous few years and if any of those accounts are still open. After a bankruptcy some of your old credit accounts, which have been discharged, will still be showing as open which will hurt your credit score even more. Contact the credit bureaus in writing and alert them to the change in your status.

2. Make a budget. The more money that you will be able to put down on your car purchase the less dealer financing you will have to take on and the less interest you will have to pay over the course of the loan. You want to be able to purchase just enough car. You are just coming out of bankruptcy so you don't need a cadillac. Take a look at your monthly budget and assume that no more than 10% of your monthly income will be able to go towards your auto loan.

3. Use a volume lender. You have to appreciate the position of your auto loan lender. They are taking a sizable (but necessary) risk in approving you for a loan after a bankruptcy in the first place. Because of this many smaller lenders will try to mitigate this risk by sticking the lender (you) with some truly atrocious terms. The way to combat this is to utilize an auto loan specialist that writes thousands of car loans a year. When you use a volume lender you are pooling yourself with all the other applicants that are coming out of bankruptcy as well. When the risk is pooled in this way, the overall risk to the lender is mitigated and they do not need to charge each individual as much.

For this reason, the most appropriate lenders to work with are the online giants who have professional risk departments that manage their risk. When you work with an online loan lender you are essentially combining your buying power with that of all the buyers who find themselves in the same situation and you will get better rates. A simple search online can provide you with a short list of these top companies who lend to people just after bankruptcy. Never work with a small local car dealership unless you want to get raked over the coals.

It is important to note that getting auto loans after bankruptcy will not be as easy as obtaining auto financing if you did not have a bankruptcy on your record. However, the top auto lenders have all worked with bankruptcy clients before. They understand the risks and have written protections into the terms of your agreement. That is to say, just because you have had a bankruptcy in your past it does not mean that you do not deserve a reasonable auto loan at a fair price.