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Car Loans After Bankruptcy

By Edited Feb 3, 2014 0 0

Obtaining car loans after bankruptcy can be a challenge. The good news is that there are steps that you can take you obtain reasonable rates and get approval for a loan that fits your needs. There are a lot of misconceptions about getting credit after a bankruptcy and because of this there is a lot of misinformation going around. However, if you get the facts you will see that there is life after bankruptcy regardless of how much debt was discharged and that most, if not all, large lenders will approve you even if you have had a bankruptcy in the recent past.

Getting a car loan after bankruptcy

First, let's look at a couple of misconceptions that people have about how bankruptcy affects your ability to get a loan. Some people fear that if they have recently had a bankruptcy that they are seen as a huge risk and therefore unable to obtain a car loan at a decent rate. This is, quite frankly, a myth. In 2005 the bankruptcy laws in the United States were radically amended and they have actually improved the standing of people who have been forced into bankruptcy. Here is what I mean: After 2005, if you declare Chapter 7 bankruptcy and your debts are discharged you are prohibited from declaring bankruptcy again for eight years. Therefore, your lender knows that there is no legal way for you to discharge another auto loan over that time period. In that sense you are actually less of a risk than a person who has never before declared bankruptcy.

Another misconception is that only the smallest local car dealerships will write a loan for someone who has recently emerged from bankruptcy. This is patently false and is the type of misinformation that these small, local, predatory used car dealerships want you to believe. The fact of the matter is that small used car dealerships make their money financing (lousy term) loans to people with a troubled credit history. People with sterling credit history do not do business with little used car dealerships because they do not have to. However, for some reason, people who are coming out of bankruptcy think that the only one who will lend to them, due to the bankruptcy, is the used car dealership that Manny runs on 38 St. This is not true.

The fact of the matter is that small used car dealerships make a killing taking advantage of sub-prime auto borrowers who have had bankruptcies in the past. They use the fact that a person has had a bankruptcy to force them to pay outlandish interest rates and fees on their auto loan. The buyer, who thinks they have no other choice, will pay this money because they think that they lack alternatives. When, in fact, due to the law, a person will not be able to discharge that auto loan for the entire life of the loan if they have recently declared bankruptcy. That small dealership knows that they have you on the hook for up to eight years and they will overcharge you to an insane degree.


How to get reasonable car loans after bankruptcy

If you have recently emerged bankruptcy, the good news is that it is entirely possible to obtain a reasonable auto loan from a licensed lender. And you do not have to work with the shady used car dealership in the bad part of town. Thanks to the internet, there are now a dozen or more large, liquid lenders that work with post-bankruptcy clients everyday. Such companies work centrally and loan to people in every state in the United States. And, the best part is, volume online auto loan lenders spread the risk around thousands of lenders.

Let's say that you are an auto lender that makes ten loans a year. If you believe that one of your lenders represents a significant default risk, you would assign all persons a much higher interest rate in order to mitigate the risk. On the other hand, if you work out of a central office and write loans for thousands of people coming out of bankruptcy you can spread the risk around all of your accounts. And if you have 10,000 accounts and 1% end up as deadbeats who do not pay, you are still making money. But if you have only ten borrowers and you get unlucky and one of them bails on your loan, you will lose a lot of money. For this reason, the volume online auto lenders who work with thousands of accounts can spread the risk thin and keep costs reasonable for everyone. Because they write so many loans they know that the 1% who go bad are not going to kill their business.

For this reason, it is always recommended that you work with a large online auto loan lender when looking for financing. In some cases it can be beneficial to work with a lender who specializes in auto loans for people coming out of bankruptcy proceedings but, in most cases, this is incidental. The important thing is to let the fact that were millions of bankruptcies last year work to your advantage rather than your disadvantage.

When looking for an online auto lender you will want to take your time and get a couple of offers. You don't have to work with the first one who will lend to you and be grateful because you just had a bankruptcy. I hope if you have learned anything in this article is that getting car loans after bankruptcy does not have to mean that the lender must get raked over the coals as many people think it is. The important thing is to look at least three sites, compare your offers, do the math and then go with the loan that works for your situation.

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