Anna Fleet

08/14/2007

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Bad Credit Car Loans

8 Tips for Securing a Car Loan After Bankruptcy.

Would you agree with the statement that people can learn from their mistakes? When it comes to declaring a bankruptcy, you not only have to deal with the shame and loss of having to start all over again, but you have to deal with the fact that you just aren’t attractive to creditors anymore. Once you had them mailing you credit card offers every month, and now they won’t even consider you for a car loan.

What if I told you that even though you’ve declared bankruptcy, that doesn’t mean you can’t get a car loan? You can actually apply for a car loan the day after your bankruptcy case closes. It’s true that you may be viewed as a high credit risk, meaning your credit-worthiness is questionable; however that doesn’t mean you still don’t have some options when it comes to financing a vehicle. Yes, you will likely pay higher annual percentage rates compared to someone with good credit, but financing a car could be your first step towards improving your credit score.

To get approved with the best car loan with the best possible rates, follow our 8 smart car loan shopping tips:

1. Budget your car purchase – Before even stepping foot on a car lot or near a lender, take the time to budget what you can afford in monthly car payments. Remember to also consider the term of length of your loan. Car salespeople have the sneaky habit of stretching out the term of a loan in order to meet your maximum monthly payments. Remember any loan can be brought down to $300 monthly payments if it’s stretched out over 5 to 8 years. Ask yourself the two most important auto loan questions:
   
   • How much can I afford to pay per month?
   • How long do I want to be paying this loan off?
   
   
2. Shop around for the best interest rates available – There are reputable lenders and even traditional lenders that will offer those with poor credit a car loan. Many even specialize in lending to individuals with pervious bankruptcies, foreclosures and repossessions on automobiles in the past. Car loan lenders work like mortgage brokers, they will shop around for the best interest rate for you, and many have been known to snag auto loan rates as low as 3% to 4% for those with bad credit histories. Just remember that declaring bankruptcy doesn’t mean you have to accept a loan from shifty creditors with the highest interest rates. There are reputable companies out there who will work with you to secure a loan that you can manage, and that will help you build up your credit rating again. You’d be surprised at how many lenders are willing to work with you, to help you rebuild your credit. They just need to know that you are doing everything you can to get out of the bad credit trap. That if they lend you the money you will be responsible with it and pay it back on time.
   
   
3. Check for mistakes on your credit report – One of the most common reasons that people are deemed “high risk” borrowers is because of a mistake on your credit report – for example an account that is closed may still appear open on your credit report. This small technicality may be negatively impacting your credit score and your ability to secure a car loan without your knowledge. According to the Federal Trade Commission’s (FTC) Fair Credit Reporting Act (FCRA) every United States citizen has the right to request a copy of their credit report from one of the major consumer financial reporting companies - Equifax, Experian, and TransUnion. You can request a free copy of your credit report on an annual basis via the Federal Trade Commission website. So get a copy of your credit report and check for any mistakes that might be hindering your ability to get a car loan.
   
   
4. Attempt to improve your credit rating in the short term – Call it reaching an olive branch into the financing world or whatever you like, but if you have outstanding credit balances you can improve your credit rating in the eyes of lenders if you pay off some of it. Before you apply for an auto loan, consider putting down a large lump sum payment down on your existing debt to show creditors that you are serious about improving your credit score.
   
   
5. An explanation can go a long way – Did you know that you have the ability to add a one page explanation for bankruptcy on your credit report? Sure, irresponsible financial practices commonly result in bankruptcy, but sometimes so do medical bills, sickness, injury, job loss and etc. Creditors lump everyone who declares bankruptcy in the same category – the “high risk” borrower category. However oftentimes emergency situations lead to financial difficulties. Does a person who lost their job due to illness deserve to be tossed in the same category as someone who just doesn’t pay their bills? No! That’s why you have the opportunity to explain yourself to creditors. Add a bankruptcy explanation to your credit report detailing the situation that led to your bankruptcy. Under extenuating circumstances – job loss, illness - lenders have been known to approve car loans and even give better interest rates. You will also notice that your car loan application will ask if you’ve ever declared bankruptcy and why? You should also take this opportunity to explain your situation in detail – especially if you suffered financial difficulty due to a sudden emergency family situation, illness or unexpected job loss. Be sure to also include how this loan will help you improve your financial and credit history as well.
   
   
6. Explore all of your car loan options using a lender – Auto loan lenders operate just like mortgage brokers. They stay on top of the rates offered by thousands of auto financers and give you a bunch of different options. Just like a mortgage broker they shop around for the best annual percentage rates, interest rates on monthly payments and loan terms (length). The plus side is that loan lenders are paid by the financial institutions – not by you – so using a loan lender is not an extra expense that will come out of your wallet.
   
   
7. Apply for a car loan with a large deposit – Putting a large down payment on the vehicle you want to buy will show creditors that you’re dedicated to paying it off. A large deposit on the car will also get you a lower interest rate on your car loan. No deposit down will do the opposite. It will also cut your monthly payments down quite substantially.
   
   
8. Improve your loan through refinancing – Refinancing your auto loan is always an option. If you are stuck in a car loan with high interest rates, keep your eye out for better average auto loan rates using Bankrate.com and websites that offer current feeds on the lowest and most current auto rates available through various lenders. If you’re APR is high, you should be looking to get a better loan with an APR that’s at least 1% to 3% lower than your current auto loan. You will save lot in monthly payments with a lower APR, and the dollars you save can help you pay off your car loan sooner.