Taking on a new car loan while in bankruptcy Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial decisions by providing you with interactive financial calculators and tools, publishing original and objective content. We also allow you to conduct research and compare information for free - so that you can make sound financial decisions. Bankrate has agreements with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this website are provided by companies that pay us. This compensation could affect how and when products are featured on the site, such as for instance, the order in which they may be listed within the categories of listing, except where prohibited by law. Our mortgage, home equity and other home lending products. This compensation, however, does have no impact on the information we publish, or the reviews that you see on this site. We do not include the vast array of companies or financial offerings that could be open to you. SHARE Westend61/Getty images
5 min read Published June 22, 2022
Written by Jackie Lam Written by Contributing writer Jackie Lam is a contributing writer for Bankrate. Jackie is a writer on auto loans. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex subjects into bite-sized pieces. The Bankrate promises
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Therefore, this compensation may influence the manner, place and when products appear within listing categories, except where prohibited by law. We also offer mortgage, home equity, and other home loan products. Other factors, like our own website rules and whether a product is available within your area or at your personal credit score could also affect the way and place products are listed on this site. Although we try to offer a wide range offers, Bankrate does not include details about each credit or financial product or service. If you file Chapter 13 bankruptcy -- often referred to as repayment bankruptcy, your credit will take a hit and will remain on your credit score for seven years. With Chapter 13 bankruptcy, you are required to sign a repayment agreement that is approved by the court, says Amy Lins, vice president of enterprise learning for , a nonprofit credit counseling agency that is based in Sugar Land, Texas. "This payment is spread over three to five years, which means that you are not able to take on any more debt," says Lins. "However the court does recognize that life can change, and it may be necessary to acquire an automobile prior to the end of the Chapter 13 repayment plan." It is possible to obtain an auto loan however, your options will be limited. How do you get a car loan while in Chapter 13 bankruptcy If you have enough cash to purchase an automobile, you may buy a car in money without having to apply to the court. But, you might need to alter your bankruptcy schedule in order to get it changed, so consult your attorney first. If you need to get a car loan even though you're on your repayment plan and prior to the discharge of bankruptcy, it is possible to take it. Here are four steps to take, explains Lins. 1. Create a budget that shows that you can afford the car payment You'll need to prove that you are able to take care of your debt repayment, additional financial commitments and responsibilities , as well as the payment for the car. "If the car purchase going to impact other elements in your plan for repayment, work with your attorney to create an alternative payment plan" advises Lins. 2. Find the lender who can work with Chapter 13 bankruptcies There are only a few car dealers and lenders that will cooperate with people who are in bankruptcy, but there are certainly some who will, explains Lins. "Your bankruptcy lawyer may be able to provide the names of dealers and lenders that are willing to work with you and you can inquire with your local credit union or bank." And because your credit score will suffer from bankruptcy, expect more expensive interest rates, higher fees and less favorable terms. It is also necessary to locate an auto dealer that works with to get the car financing. Although your options are limited take your time and look at rates and terms from a few different lenders. You should have the offer, including the purchase price, monthly installment and interest rate in writing to provide to the court, says Lins. "Keep the purchase price at a minimum and make sure you wait until you have a bankruptcy discharge and rebuild your credit prior to buying a larger vehicle," she says. 3. You can file a motion with the court to purchase the car to pay off the car debt while you're still paying off your debts, you'll need to submit a motion to the court to have it accepted. This entails bringing your order and having a solid argument for why you're required to purchase a vehicle and why you'll have to obtain financing in order to do so. Maybe your previous car broke down and the repairs are so substantial that it makes more sense to buy a new car. Or you reside in an area that public transportation isn't easily accessible. This step is something your bankruptcy lawyer can help with. 4. When the purchase is approved by the court you can then obtain your car loan and then get your car. Make the purchase and begin paying the loan over with the rest of your obligations. How to obtain an auto loan after Chapter 13 bankruptcy Once you have completed your court-ordered debt payment and get released, you will not need to go through the courts to get your approved. If you're able to, try to use the vehicle you own until you are at least six months past discharge, says Lins. Improve your credit score There are several ways to improve your credit score, such as obtaining and using secured credit cards. The process of obtaining a secured credit card requires making a small down payment that serves as collateral. Your deposit will be used as a credit line to credit cards. "Charging and paying small amounts over time will aid in building an excellent credit score," says Lins. There are also services that report on rent and other bills, such as cell phone and utilities, and streaming services to help you create or maintain an on-time payment history, says Lins. "These services usually charge a modest fee, but they can be free," she says. "Using your rent and utility bills to establish credit history could be a good strategy to jump-start the rebuilding process." Keep track of your credit. In addition to rebuilding your credit, you will be able to monitor it. This will allow you to see the progress you're making and what kind of improvement could be made. Additionally, keeping track of your credit regularly can help you spot errors which could affect your credit score in the future. You can order free reports from AnnualCreditReport.com or sign up for a free credit monitoring service. Some credit cards provide a free monthly look at how your score on credit. Look around for an affordable car. Be sure to select a car that's within the range of the amount you are able to afford. to ensure that you are in good shape with your obligations. This will aid in rebuilding your credit and ensure that you are on the right the right track. Examine your expenses for the month to determine how much of a car loan your budget can allow. As a rule of thumb, car related expenses should not exceed 20% of your budget per month. This is an amount that covers the cost of gasoline maintenance, insurance, and. You might also wish to determine a budget for your purchase based on data available on websites such as Edmunds and Kelley, which provide used and new prices for cars, and estimates for insurance costs. Make a down payment The more you pay, the less you'll have to pay to it in the near future. Look at your budget and figure out the amount you can afford to stash away every month towards purchasing a vehicle. The ideal is to save as much money as you can, but it ultimately boils to your income expenditures, obligations and current obligations. Alternatives to obtaining a new car loan If you're unhappy with the rates and terms that are offered with an auto loan or have trouble getting approved altogether, consider other options. You can look for a car that is less expensive. Even if your interest rate is very high, your total cost of payments and how much you have to pay monthly is more affordable. Be patient and pay off the loan later, once your credit has improved. When you have rebuilt your credit score, you'll likely qualify for a wider range of car loans with low interest rates, lower fees , and better terms. You can pay cash in full. The savings and the in cash for a car means that you don't have to apply for an auto loan at all that will save you in interest fees. If you require to purchase a car earlier that later may have to get an . The bottom line is that getting the car loan through Chapter 13 bankruptcy is possible. Find an lender that is willing to work in conjunction with Chapter 13 bankruptcies and create a reasonable budget that allows you to pay off debt and also pay for a car loan. It's also crucial to research the market to find the right car to fit your budget. When you've been discharged from bankruptcy, financing options also exist. The initial step to take is rebuild your credit score by establishing the habit of paying debt on time. "It's an old adage, but the truth is that time heals any wound, including those in your score," Lins says. Lins. Find out more
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Written by the writer who contributes to the project. Jackie Lam is a contributing writer for Bankrate. Jackie writes about auto loans. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are committed to helping readers gain the confidence to manage their finances with precise, well-studied information that breaks down otherwise complex topics into manageable bites.
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