Obtaining an Auto Loan After Chapter 7 Bankruptcy
Once you have received a Chapter 7 discharge and your bankruptcy case has closed, the financial recovery can begin. Good financial habits should become part of your daily life, like living within a budget, paying cash instead of credit for purchases, and contributing to your future with retirement funds and cash savings. But what happens if you need a car loan shortly after completing a Chapter 7 bankruptcy case?
Obtaining an auto loan after a Chapter 7 bankruptcy requires some work and patience. A good first step is to contact the finance manager at a large auto dealer in your community. Large dealerships have special relationships with local banks and credit unions and are more likely to find you financing. You will have a better chance at finding financing through a large auto dealer rather than a small auto dealer or even a local bank.
Primarily, the lender wants assurances that the loan will be repaid. The easy answer is to obtain a co-signor or guarantor with good credit. If you fail to pay the auto loan, the loan company can try to collect from you, your co-signor, or both. In some cases, an auto finance company will not approve a loan which includes a borrower with a recent bankruptcy – despite the assurances of a co-signor. That is not the case for every lender, so do not get discouraged if you are denied.
If you are unable to obtain a co-signor, in many cases a large down-payment may persuade a lender to take a chance with you. Cash on the table also means that the dealership has a greater incentive to make the deal happen. Ordinarily a 20% down payment is a minimum amount to get this type of result.
Large dealerships may also provide financing or other in-house opportunities for buyers with damaged credit. Some lenders may offer high interest rate loan programs that will step down the interest rate with timely payments. Large dealers also have access to promotions and special financing from the manufacturer.
Be wise and careful when using credit! Because the large dealership is under a great incentive to sell new vehicles, recently discharged debtors are often offered new vehicle financing. This may mean buying a car you don’t want at a price you can’t afford. Be careful in this situation and do not be blinded by the offer of credit and the thought of a new car.