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Every American who has endured a bankruptcy knows that it is a credit rating downer that will hang around up to ten years, depending on the type of bankruptcy pursued (Chapter 7 or Chapter 11). A bankruptcy can reduce a credit score by one-hundred points or more, bringing down the consumer a couple tiers of creditworthiness. And they will experience the blues when they approach conventional lenders, banks and credit unions, and are abjectly turned away with little consideration.
Interest Rate Red
Waiting the seven to ten years for the bankruptcy to finally drop off a credit rating is not necessary. Wait about six months. During that time it would be wise to limit any financial activity that would show up on a credit report. Unless it is something positive such as getting a secured credit card and keeping payments current. When a consumer finally approaches a lender who will finance bankruptcies, they will probably see red when learning the interest rates they must endure. A recent study of consumers who had been through bankruptcy indicated that they expected to pay up to twenty percent in interest rates. The truth is, it could be even higher. An alternative may be to approach a Buy-Here-Pay-Here car lot. They offer in-house financing without credit checks, but the rates will still be high.
Going for the Green
Landing a car loan after a bankruptcy is a tremendous step. Even though the interest rates will be high, it is an opportunity to start rebuilding your credit, provided the monthly payment obligation is met. Another way to remove the tarnish on your credit rating is to obtain a secured credit card. These instruments were created to help those with poor credit ratings get back on an even credit keel. The plan requires depositing an amount of cash in a financial institution, a bank or credit union. The amount of the deposit dictates your spending limit. The card is secured by the amount of the deposit. Usual credit cards do not require this, limits are set by income and monthly obligations. Rates can be high on secured cards, but they allow you to create a positive payment history for other lenders to evaluate.
Staying In the Black
By taking the steps to procure a secured credit card, you can increase the chances of getting a car loan. Interest rates can drop, especially the Annual Percentage Rate (APR). You need to budget very conservatively when negotiating with a dealer or bankruptcy auto loan lender. Stick by your figures that you have determined to be the most manageable considering your monthly income and outflow. With the bankruptcy hanging over your credit score, get the smallest, most maintenance-free car available. Give your ego a rest, you really do not need to be tooling around town in a red convertible sports car. The reality is, even a modest vehicle will be a burden caused by the high interest rate.
Flashing Yellow Caution
At this point it would be disastrous to find yourself in a position where you cannot pay your bills. Choose wisely, modestly, and only after you have given your monthly obligations carefully. Post-bankruptcy car loans are not that hard to come buy, but they can be very dangerous if you do not manage your finances properly. A default after bankruptcy could have you riding the bus for a long, long time.
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