Although it may feel like it, filing bankruptcy is not the end of the world. There are many things that can cause a person to have to file bankruptcy. Layoffs, employer downsizing, divorce, and adjustable rate mortgages just to name a few. Your credit score is going to take a hit when your bankruptcy discharges but your overall financial situation should start to improve. Your traditional sources of lending you have used in the past will not be able to help you until you start to re establish some credit. Luckily there is a whole industry of sub prime lenders dedicated to auto loans with bad credit. These lenders deal with damaged credit and previous bankruptcy filings. Although the rates will be higher than prime rate lenders, it is a way for you to start rebuilding your credit history with the goal of raising your credit score back up to a point where you can refinance this loan at a much cheaper interest rate in the future. There are some things however that you will need to demonstrate to these lenders ahead of time to be considered for approval.
1) Bankruptcy Must Be Discharged- Your bankruptcy must be discharged before sub prime lenders will approve you for a loan. The reason for this is because at any time before the discharge, a person can add outstanding debt into the bankruptcy. Banks do not want to approve a loan only to have it added into your bankruptcy filing. Be prepared to provide copies of your discharge papers to the lender you are applying through because they are definitely going to ask for them.
2) Provide Evidence Your Financial Situation Has Improved- This is a fairly simple task given the fact that the majority of your debt has been discharged in the bankruptcy filing. Be prepared to provide a list of debtors that you no longer are required to pay back. This is especially important if you bankruptcy is recent because the credit borough can sometimes take a while to update this info. If a lender looks at your credit report and it still shows your entire debt load you may not qualify because of "debt to income" ratio shortages. Having a list of your discharged debtors will eliminate this problem.
3) Provide Proof Of Employment- You are going to have to be employed or have a verifiable source of income to be considered for approval. Sub prime lenders know that your income level may have dropped from your previous employment if you have been laid off. The good news here is that your debt load has also dropped. The important thing is that you are back to work. Most sub prime lenders will not accept unemployment compensation as proof of income.
4) Down Payment- Although not always required it really helps to show the lender that you have saved up some money to put down on this loan. Not only does it demonstrate that your financial situation has improved but also that you have had the financial discipline to set aside this money.
As you can see it is possible to get approved for auto loans after bankruptcy but there are some things you will need to provide to be considered. The interest rate you pay is going to be higher than you are used to paying but as you start to make timely payments on this loan your credit score will start to rise and you can look to refinance this loan at a cheaper rate in the future. It is recommended that you have copies of all the items listed above ready ahead of time to submit with your application. This will speed up the process and greatly improve your chances for approval.
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