How to Buy a New Car After Bankruptcy

A bankruptcy ruins your credit rating, and makes it difficult to acquire a mortgage loan, personal loan and other types of credit. However, it is possible to obtain a car loan after bankruptcy. In fact, several auto dealers and lenders specialize in bad credit auto loans, which are designed to help people with a low credit score rebuild their credit history.

Difficulty: Moderate

Instructions

Things You'll Need:

• Co-signer
• Down payment

1. Get a secured credit card. These cards help people with bad credit establish or re-establish their credit history. And once you've made several on-time payments, it becomes easier to obtain other lines of credit.

2. Use a co-signer. Depending on the auto lender, you may need a co-signer to acquire a new car after bankruptcy. Find someone with a high credit score. Make sure the individual fully comprehends the co-signing arrangement. If you default on the auto loan, the co-signer becomes responsible for the debt.

3. Pay a high interest rate. Auto lenders may approve your application without a co-signer, however, you'll pay a higher interest rate. On average, people with bad credit pay an interest rate that's 3 to 4 percentage points higher than a person with good credit.

4. Save money for a down payment. Having a down payment can persuade an auto lender to approve your application for a new car loan after bankruptcy, and they may lower the interest rate. Typical down payments are between 10 and 20 percent of the sale price.

5. Wait 2 years before applying for an auto loan. If you don't have a co-signer or a down payment, and you don't want to deal with a high interest rate, wait at least 2 years before buying a new car. Rebuild your credit history during this time and improve your score. Acquire two secured credit card accounts and maintain these accounts. After doing thos, you should be able to obtain a low-rate car loan.

Resources

• Credit Cards - Get a Secured Credit Card
• My Fico - Improve Your Credit Score

[sunboy2372]

on 9/29/2009 As a bankruptcy paralegal, I must take issue with the first sentence of this article. Bankruptcy does not "ruin" your credit rating. In fact, the credit scores of many people who file is at its lowest at the point of filing the case. The score rises from that moment forward. The US Bankruptcy Code is in place to help people who need it the most and has built-in safeguards to avoid abuse, so "ruins your credit rating" is probably not the most accurate description, especially if you are already in default with your creditors. If you are considering a bankruptcy, I would suggest seeking the advice of a professional before being scared off by hype such as this.