Taking on a new car loan while in bankruptcy Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial choices by offering you financial calculators and interactive tools, publishing original and objective content, by enabling you to conduct research and compare information for free to help you make sound financial decisions. Bankrate has agreements with issuers including, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Profit The offers that appear on this site are from companies that compensate us. This compensation could affect how and where products appear on the site, such as, for example, the order in which they may appear in the listing categories and other categories, unless prohibited by law for our mortgage, home equity and other home lending products. However, this compensation will not influence the content we publish or the reviews that you read on this site. We do not cover the entire universe of businesses or financial offers that may be available 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 write about automobile loans. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to manage their finances by providing concise, well-studied information that break down complicated issues into digestible chunks. The Bankrate promise
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We are compensated in exchange for the promotion of sponsored goods and services or through you clicking certain links posted on our site. So, this compensation can impact how, where and when products appear within listing categories in the event that they are not permitted by law. This is the case for our loan products, such as mortgages and home equity and other products for home loans. Other factors, like our own proprietary website rules and whether a product is available in the area you reside in or is within your self-selected credit score range could also affect the way and place products are listed on this site. We strive to offer an array of offers, Bankrate does not include specific information on every financial or credit item or product. If you file Chapter 13 bankruptcy -- often referred to as repayment bankruptcy credit score will be affected and it will remain on your credit score for seven years. In Chapter 13 bankruptcy, you are required to sign a repayment agreement that is that is approved by the court clarifies Amy Lins, vice president of enterprise learning at , an agency that provides credit counseling for non-profits based in Sugar Land, Texas. "This repayment takes place over a period of 3 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 happens and it could be necessary to buy vehicles prior to the conclusion in the Chapter 13 repayment plan." You may be able to get a car loan however your options will be restricted. What is the best way to obtain a car loan while in Chapter 13 bankruptcy If you have enough cash to pay for the purchase of a vehicle, you could simply purchase a vehicle for money without having to apply to the court. But, you might need to alter your bankruptcy schedule and consult with your lawyer prior to making any changes. If you need to get a car loan when you're still on your repayment plan and prior to the discharge of bankruptcy, it is possible to be able to do it. Here are four steps to take, explains Lins. 1. Create a new budget to show that you can afford the cost of your car. You'll need to prove that you are able to manage your debt repayment with additional financial commitments and responsibilities , as well as the cost of your car. "If the car purchase is going to impact other aspects that you are able to repay, work with your lawyer to develop a new repayment plan," says Lins. 2. Find the lender that will work with Chapter 13 bankruptcies There are very few car dealers and lenders who will work with those with active bankruptcy however, there are a few that will, says Lins. "Your bankruptcy attorney might be able to give you the names of lenders and dealers that can work with you, and you can inquire with your local bank or credit union." Additionally, as your credit score will suffer from bankruptcy, expect greater interest rates, charges and less favorable terms. Also, you'll need to find an auto dealer that works with to get the car financing. Even though your options are slim, do your due diligence and check rates and terms offered by several lenders. You should have the offer, including the purchase price, monthly payment and interest rate, in writing, to submit for the courts, explains Lins. "Keep the cost of the purchase at a minimum and wait to exit bankruptcy and rebuild your credit prior to buying a larger vehicle," she says. 3. Make a motion to the court to purchase the car to pay off the car's debt while still paying off your debts, you'll need to file a motion with the court in order to get it accepted. This involves bringing in your request along with a clear explanation of why you need to purchase a vehicle and why you'll have finance for this. Perhaps your last car broke down, and the repair costs are so significant that financially it's more beneficial to buy a new car. Or you reside in an area where public transit isn't easily accessible. This is something your bankruptcy lawyer can help with. 4. Complete the purchase Once the purchase is approved by the court, you can then obtain your car loan and get your car. Make the purchase and begin paying the loan over with the rest of your obligations. How do you get a car loan following Chapter 13 bankruptcy Once you have completed your court-ordered debt payment and get discharged, you won't have to apply to the courts to obtain your approval. If you're in a position to, take advantage of the car you have until you're at six months post discharge, explains Lins. Increase your credit score are several ways to , including getting and responsibly using secured credit cards. A secured credit card requires making a small down payment that serves as collateral. Your deposit becomes the credit line for your credit card. "Charging and repaying small amounts over time can aid in building an excellent credit score," says Lins. There are also services that will report rent and other bills, such as cell phone, utilities and streaming services that can help you create or maintain an punctual payment history, according to Lins. "These services typically charge an affordable fee, however they can be completely free," she says. "Using your rent and utility bills to establish credit history could be a good strategy to jump-start the rebuilding process." Check your credit. In addition to rebuilding your credit, you will be able to monitor it. This will let you know how far you've come and what kinds of improvements could be made. Additionally, keeping track of your credit on a regular basis will allow you to spot any errors that can ding your score in the future. You can order free reports from AnnualCreditReport.com or sign up for a free credit monitoring service. Many credit cards also offer an annual free look at how your score on credit. Shop around for an affordable car. Making sure to shop for cars that are within the range of the budget you're able to comfortably afford to ensure that you are on top of the payment. This can in turn aid in rebuilding your credit score and keep you on course. Check your expenses for the month to determine how much of a car loan your budget can allow. As a general rule automobile-related costs should not exceed 20 percent of your budget for the month -- which includes the cost of fuel, maintenance and insurance. You may also want to establish a price target to purchase your car using the information on the internet via websites like Edmunds and Kelley, which provide used and new car prices, as well as estimates of insurance costs. Make a down payment The more you pay, the less you'll have to pay on it in the near future. Review your budget and see how much you can reasonably be able to save each month toward purchasing a vehicle. It is ideal to save as much money as you can however it all comes down to your earnings expenditures, obligations and current obligations. Alternatives to obtaining a new car loan If you're not satisfied with the rates and terms provided for the car loan or have difficulties getting it approved look into other options. Looking for a cheaper car. Even if the rate of interest is high, your total amount of payment and the amount you owe monthly will be less expensive. You can finance it later once your credit score has improved. After you've rebuilt your credit score, you'll likely qualify for a greater variety of auto loans with low interest rates, lower fees , and better terms. Cash out completely. Saving money and paying in cash for a car means that you don't have to seek an auto loan for any reason, which will save you on interest charges. However, if you're in need of to purchase a car earlier than later, you might require the loan . The bottom line is that getting an auto loan through Chapter 13 bankruptcy is possible. Find an lender who is willing to collaborate on Chapter 13 bankruptcies and create a reasonable budget that allows you to pay off debt while also paying for a car loan. It's also crucial to shop around to find a car that fits within your budget. After you are discharged of bankruptcy, finance options also are available. But the first step is to repair your credit by setting up the habit of making debt payments punctually. "It's an old saying however, time does heal all wounds, including wounds that affect your credit scores," Lins says. Lins. Learn more
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Written by Contributing writer 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 editing and writing for Bankrate from late 2021. They are committed to helping readers gain confidence to manage their finances through providing concise, well-studied and well-researched content that breaks down complicated topics into manageable bites.
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