Can I Get a Car Loan After Bankruptcy?

Bankruptcy is generally a last resort, and it's not the right choice for everyone. But if you're in too much debt to reasonably pay off, declaring bankruptcy can be the best way forward. Bankruptcy can help you get rid of debt, but it also makes it difficult to get a credit card, a loan, or any other type of credit.

Most people don't have enough savings to pay for a car entirely in cash. Whether you've just declared bankruptcy or are considering it, you may want to know whether you can get a car loan after bankruptcy.

Can you get a car loan after bankruptcy?

It's entirely possible. Typically, it's easier to get a car loan after bankruptcy than a personal loan. That's because a car loan is secured by collateral: If you don't pay, the lender can repossess the car and recover their money that way.

However, many lenders won't be willing to work with you, and the ones that do will probably charge high interest rates.

How bankruptcy affects your ability to get an auto loan

After you declare bankruptcy, you'll have some trouble securing credit, including car loans. Consider speaking with a lender that specializes in auto loans for people with bad credit.

Chapter 7 bankruptcy

Declaring Chapter 7 bankruptcy can lower your credit score by 100 points or more, so once your debts have been discharged and the bankruptcy process is complete, your credit might be at an all-time low.

You could probably get approved for a car loan at this point. But you'd likely only be approved for one with a high interest rate, high fees, or both. Many dedicate some time to rebuilding their credit scores before taking out a post-bankruptcy car loan.

Chapter 13 bankruptcy

Chapter 13 bankruptcy is sometimes called a "wage earner's plan" because it requires you to pay toward your debts. Once you've completed your repayment plan, getting a car loan should be relatively simple.

How to get a car loan after bankruptcy

Getting approved for a car loan after bankruptcy is possible, but it might not be easy. These tips may improve your chances of getting approved:

• Ask a family member or close friend if they would be willing to co-sign the loan
• Save money for a larger down payment before buying
• Check with credit unions or lenders that focus on people with lower credit scores
• Choose a more affordable vehicle

Always look closely at interest rates and loan terms. Some lenders prey on people with lower credit scores by charging outrageous interest rates.

How to rebuild your credit after bankruptcy

Seeing your credit score drop after bankruptcy can be discouraging. But the good news is that you can rebuild it from there!

After you declare bankruptcy, you should work on establishing a positive credit history. Your payment history is the most significant factor influencing your credit score, so making all payments on time and in full will help boost your score.

If you don't have an existing credit account, consider applying for a secured credit card or another product designed specifically for those with poor credit or limited credit history. Use the account to purchase a few things each month and then pay the statement balance in full.

You can also review your credit report and dispute any errors. Credit-builder apps can connect you with credit-building tools. Kikoff is one of those apps. We don't check your credit when you sign up, and if you're approved, you'll gain access to a credit line you can use to buy items in our online store.

Ready to start rebuilding?

When you take meaningful steps to rebuild your credit after bankruptcy, you can increase your chances of getting a car loan. Create your account with us today!