Can You Still Get a Car Loan After Bankruptcy?

In the age of super high debt loads, with the average Canadian carrying over $22,000 in debt, bankruptcy remains one of the more misunderstood topics in Canadian personal finance. The confusion and myths surrounding bankruptcy in Canada remain in part because bankruptcy is still relatively rare. But that may be changing, as over 70% of members of the Canadian Association of Insolvency and Restructuring Professionals expect bankruptcy filings to rise over the next five years.

Whether you are going through bankruptcy now or considering it as a future course of action, it’s important to remember that people who experience bankruptcy aren’t consigned to financial ruin for life. Instead, bankruptcy is designed to help someone in financial trouble start fresh. Starting fresh means starting your life over, and for many Canadians, that could involve a post-bankruptcy car loan.

How Long to Wait Before Applying for a Post-Bankruptcy Car Loan

While bankruptcy will stay on your credit report for six years, you don’t have to wait that long before applying for new credit. In fact, during those six years, it’s important that you rebuild your credit by applying for and faithfully paying back credit of some kind (including loans). It’s unlikely that you’ll be approved for a car loan during bankruptcy without a significant asset to secure your loan, but after bankruptcy proceedings conclude, getting approved for a car loan is possible.

Finding Potential Lenders for a Car Loan After Bankruptcy

Finding the best car loan rates after bankruptcy is a little complicated. First, traditional lenders like banks may not be interested in lending you money for a car loan, or they may only do so at exorbitant interest rates. You can apply for a car loan through in-house financing from a dealership, but again, be prepared for higher interest rates.

While many dealerships will work with you to secure financing, especially if you can demonstrate that your income will support the payments, the amount they are willing to lend you may be less. For this reason, you should expect to finance a car valued at closer to $10,000 than, say, $50,000.

An alternative to in-house financing from a car dealership is working with a lending company that specializes in customers who are recovering from bankruptcy. These companies look beyond your credit score and do a deep dive into your financial situation. They weigh your income, recent payment history, credit score, down payment, and reasons for bankruptcy, and then offer you financing based on that information.

How to Increase Your Chances of Car Loan Approval after Bankruptcy

The first step to increase your chances of getting approved for a car loan is to increase your credit score. While your bankruptcy will remain on your credit report for six years, taking steps to build your credit score after bankruptcy does not go unnoticed. Here are some concrete steps you can take:

  • Apply for a secured credit card, use it regularly, and diligently pay off the balance every month
  • Never miss a payment on your utility bills
  • Keep your credit utilization rate to less than 35% of your overall credit limit
  • Avoid applying for several new sources of credit at once, which can temporarily decrease your credit score

On top of that, you should work to save up a decent down payment for your car loan. A large down payment demonstrates to your potential lenders that you have extra space in your budget for savings and car payments.

Finally, work to increase your income as much as possible. A good income will demonstrate to lenders that you can afford your monthly payments.

Be Wary of Predatory Loan Terms

Unfortunately, applying for any type of credit after bankruptcy is more complicated, and you may be turned down by several lenders. Due to the difficulty in obtaining credit, Canadians who have been through bankruptcy are a target for predatory lenders, and you need to be on the lookout for these companies that claim to offer good interest rates to those with bad credit, but don’t follow through. When evaluating a company as a potential lender, make sure to do your research and read online reviews and complaints carefully.

If you are offered car loan financing from a company that specializes in lending to Canadians who have been through bankruptcy, make sure to read through the fine print, every last bit of it. In particular, be on the lookout for high interest rates. While someone with stellar credit may qualify for a car loan rate from 0.00% to 6.00%, Loanconnect.ca reports that anyone with bad credit should expect to pay a rate as high as 30% to 60%. That may seem high, but payday lenders routinely lend money to customers with interest rates in the triple digits. Stay far away from loans with rates like these.

Other Factors to Consider When Applying for a Car Loan After Bankruptcy

Reading the Fine Print

Once you know the interest rate you may qualify for, pay special attention to the loan terms, especially payment frequency and whether you can refinance or pay off your loan early. It’s important to evaluate whether you can afford this loan, and the payment frequency will play a big role in determining this. Double check whether the payment for this loan is monthly, not biweekly or weekly, and that you can afford it at that frequency.

Refinancing and Early Payoff

On the same note, make sure that you can refinance this loan or pay it down ahead of schedule, because in a year or two, your credit rating may have improved enough that you can qualify for a much more competitive interest rate.

Credit Reporting

Finally, make sure that the car loan is reported to at least one of Canada’s credit reporting agencies, Equifax and Transunion. Not all dealerships report their financed loans to these credit agencies, but if you are making faithful payments on your car loan every month, you absolutely want that reported to the agencies so that you can improve your credit score as much as possible.

Finally, keep in mind that applying for a car loan after bankruptcy is difficult, but that difficulty is temporary. While you may have to downgrade your expectations now to afford your monthly payments with their hefty interest charges, if you continue to make your monthly payments faithfully, eventually your credit score will improve, and you’ll be on your way to a better financial situation.

Car Loans Myths You May Believe

If you’re about to purchase a vehicle, it can feel like everyone you know has a theory about car buying. Unfortunately, many of these ideas are based on myths that keep people from getting the car they need.

We believe in being transparent and honest, so we think it’s high time to bust the most common car loan myths.

Myth: I Can’t Get a Loan with Bad Credit

Have you ever had someone tell you that you may have to lease because of your credit? Have you worried about applying for a car loan because your score is less than perfect? We are happy to tell you that car loans are available for people with bad credit.

Once upon a time, this myth was true. A few big banks used to control this market and could tightly control who could own a car. However, recent advancements have made car buying possible for many more people. Don’t let your credit score stop you.

Myth: Loans are Only for New Cars

Many people mistakenly believe that you can only finance a new car. However, we can finance both used and new cars. As a dealer, we can offer several financing options for the vehicles we sell. Don’t get sucked into this myth.

Myth: Your Own Financing is Better Than Any Dealer’s

For people with the DIY spirit, finding your funding and skipping the dealer may seem like a great deal. However, you could miss out on some great options. Even the best credit unions may not be able to match some of our deals. We encourage you to ask questions and see for yourself.

Myths: Car Loans are Expensive

This falsity is another myth that used to be true. Back when there were only a few major lenders, you could pay a lot in fees and interest. However, now that lenders compete for your business, financing can be relatively inexpensive.

Purchasing your next vehicle can be confusing, especially with so many myths around. We work hard to dispel these myths and give you the truth you need to make the right decision.

Scoring A Car Loan Despite Having Bad Credit

Having bad credit does not eliminate your chances of getting a car. We can work with you to seek out alternative financing options such as taking out a line of credit on your home if you have built up significant equity. Our financial advisors will work with you and take your personal situation into account to find the best and fastest way to get your car paid off. We understand that having bad credit does not mean you will not be able to pay back your loans.

Here to Help

Actually, there are multiple car buyers without great credit scores who are getting cars and living their lives behind the wheel thanks to financing we have helped them obtain. Every car shipper has a different approach and different needs or wants when it comes to finding the right loan for them. Fortunately, we can alleviate some of your stress by proving expertise advance on bad credit card loans and how to obtain them.

Understanding Loans

We can offer you education and information regarding how loans work and what to be aware of. Your time and money is valuable and we pride ourselves in finding your amazing interest rates and loan terms. Keep in mind a shorter loan period often requires higher payments, but your car is paid off quicker. A longer term, alternatively, reduces your monthly payment.

Lenders Consider Other Factors

Your credit score is not the sole factor in determining whether you are eligible for a loan. We work directly with lenders to ensure you are getting the right financing at competitive rates. Bad credit car loans are possible thanks to our trustworthy relationships and are ability to find creative ways such as rounding up your payments to get your car paid off in a timely manner.

We know it can be frustrating to apply for loans when you have bad credit, but we are here to offer financial assistance. It is possible to obtain financing regardless of your credit score. We have the tips and tricks to share with you and known other factors lenders consider when evaluating borrowers.

How to Get a Great Car Loan

If you are like most, you love the idea of driving a shiny, new car. Buying one can be exciting, but be careful not to get stuck with a bad car loan. Car loans come in many different forms, each with a wide variety of terms. Here are some suggestions for getting the best possible terms.

Know Your Credit

Before you go to the dealership, do some homework. Specifically, research your credit score and history. The big credit bureaus can give you a copy of your credit report. If you understand you credit worthiness, you will be in a better place to negotiate great car loan terms.

Determine a budget

Knowing how much you can afford to spend on your car each month will help you find a car loan that is realistic for you. Remember, though, that the cost of your car is more than just your payment. Don’t forget to factor in insurance, maintenance, gas, and other vehicle-related expenses. Once you know how much you can afford to pay every month, you can use a car loans calculator to determine the total price range of cars you can afford.

Shop Around

When you are ready to buy a new car, consider shopping several dealerships to find the best deal and loan terms. Not every automobile dealer will be able to sell you a car at the same price with the same terms. Remember, if you spend even a thousand dollars less for your car, you will save a tremendous amount in interest over the life of your loan.

Get Financing

You have several options for securing an automobile loan. Banks, credit unions, and financing companies all lend to car buyers. You might find, though, that financing through the dealership is the best option.

When you are ready to buy a car, you should try your best to get the best financing terms. By following a few suggestions, you will receive a great deal when shopping for car loans.

Tips for Getting an Auto Loan With Bad Credit

Bad credit car loans are available to those who have had some financial woes in the past, but are ready to improve their score. The key is knowing how to increase your chances of qualifying for a loan that has decent terms even though your credit might make finance departments a bit nervous.

 

Come Into the Dealership Prepared

 

When you are going to apply for financing at a dealership, there is some general information and documentation they need to ensure that you can be evaluated for a vehicle loan. You want to bring recent paystubs, your driver’s license, a utility bill and personal references. It is ideal that your paystubs show your year-to-date income so that they can better assess how much you earn monthly. With your references, at least one from an employer is helpful too.

 

Know Your Budget and Adjust Your Expectations

 

You should have a rough estimate concerning your budget when you walk into the dealership. Once you start working with the finance department, you might need to adjust your expectations based on the options they can offer you.

 

Prepare for a Larger Down Payment

 

Think of a larger down payment as a show of good faith. You are essentially telling the dealership that you are ready to drive off the lot today and that you know that your credit is not great, so you are giving them more upfront. This can be beneficial in helping you to get better financing options through them. To determine the best down payment, consider putting down 25 percent of the vehicle cost. For example, if you are planning to buy a vehicle that costs $10,000, bring at least $2,500 for a down payment.

 

You want to be upfront with the finance department about your credit history from the beginning. This saves time for all parties involved because they will be able to better focus their efforts on the options that you may qualify for.