A Chapter 7 Bankruptcy is a painful event that many people go through. Not only do you have to go to court and declare that you no longer have the means to continue to pay your creditors, but your credit rating is shot and now you have to try to figure out how to build your credit rating back up. Even with all the negatives of filing bankruptcy, there are several positives. For many, the opportunity to start over and start rebuilding credit is the best thing about bankruptcy.

There is no better way to improve your credit after bankruptcy than to take out a significant installment loan, like an auto loan, and make payments on time that are reported to your credit bureau.

Often times in a Chapter 7 Bankruptcy, people lose their cars, their homes, and even the furniture in their homes. It can be embarrassing. Our goal at WA Auto Credit is to make the process of helping you finance a car after a Chapter 7 Bankruptcy as simple and painless as possible…we know you have already been through enough. 

If you are gong to finance a car after a Chapter 7 Bankruptcy, you need to get a basic understanding of how the process works.

How it Works

Lenders that help people finance a car after a bankruptcy are considered “high risk” lenders. Think about it. You just told the bankruptcy court that you cannot continue to pay your debts, and new lenders worry that it might happen again. Make sense?

“But I can’t file Chapter 7 for a long time” is often the response from clients when they are told that bankruptcy loans are considered high risk. Even though you are not allowed to file a Chapter 7 for several years, many people who file bankruptcy continue to not pay their debts after the bankruptcy. Additionally, it is still possible to file a Chapter 13 Bankruptcy right after a Chapter 7, and it is still possible for you to repossess the new auto loan. Lenders want to make sure you are through your rough patch and have the ability to pay your new debts.

Monthly Payments

Bankruptcy auto lenders do not approve people for flat dollar amounts (such as $10,000, $15,000, or $20,000). This is a difficult concept for many people to grasp. Bankruptcy auto lenders approve people for payments (i.e. $300, $350, $400). The interest rate and term of the loan will depend on other factors such as down payment and vehicle, which we will get to in a moment.

If the lenders are going to give you the opportunity to rebuild your credit, the bankruptcy auto lenders are going to be conservative with your loan.  Often times, they will approve a client for a smaller payment than the client thinks he or she can afford. If your last auto loan was $300 per month, it might not make sense to an auto lender to give you a new loan that has a $500 payment.

Eligible Vehicles

One of the biggest reasons for bad credit auto loans to default is that if the vehicle breaks down, often times the customer cannot afford to pay both the bank (car payment) and the mechanic (repair bills). Bankruptcy Auto Lenders are smart enough to plan ahead and lower their risk. Typically, bankruptcy auto loans are approved on late model, low mileage vehicles. A lender knows that a 2009 Ford Focus with 29,000 miles has a much lower chance of breaking down in the next few years than a 2003 Chevrolet Suburban or BMW with 130,000 miles.

The lender does not care if you prefer SUVs or Trucks to cars. The lender is mostly concerned with whether or not you can get to work (so you can make your car payment). Still want a big SUV after a bankruptcy, read the next section.

Down Payment

Most of our bankruptcy programs do not require a down payment. Any down payment tends to give you more choices as to what vehicles will work for your loan. However…

If a lender requires you to get a newer vehicle with low miles (because it is a high risk loan), you need to know that big SUVs and trucks are going to be expensive. Same goes for luxury brands and some imports. If the lender is only approving you for a conservative payment, it might take a large down payment to get your monthly payment in line with what the lender will allow.

“What if I want an older vehicle?”

That is a very common question. Older vehicles are great for certain loan types. The lenders that are willing to do older vehicles (high risk) which usually have higher miles will lend to high risk clients under the right conditions. The lender needs a way to lower the risk of the loan. The #1 way for a lender to do a high risk loan on a high risk car is to require a large down payment. A large down payment significantly lowers the risk of the loan. People that put large down payments on vehicles do not repossess vehicles nearly as much as people that do not…even if the car breaks down. Additionally, the lender will often only allow short term loans on older vehicles, which is another way to lower the risk of the loan. Instead of 60 or 72-months, think 36 or 42-months.

Dealers that can Finance a Car after Chapter 7 Bankruptcy

The only loan programs that help people buy vehicles after a Chapter 7 Bankruptcy are associated with car dealers. However, very few dealers actually work with people that have recently filed bankruptcy. It is important to work with someone that specializes in Bankruptcy Auto Financing. Luckily, if you live in Washington, WA Auto Credit can help you.

“Why do lenders want me to buy a car from a dealer?”

It is much less risky for lenders to lend money on cars that have passed a reconditioning process at a reputable dealer than vehicles that customers can find through other sources. Remember, if car breaks down, the customer can’t always pay.

Now what?

Hopefully you picked up some useful information from this little post. If you need help financing a car after a Chapter 7 Bankruptcy, then look no further than WA Auto Credit. We are experts in both Chapter 7 and Chapter 13 Auto Financing. If you just have questions about Chapter 7 Auto Financing, feel free to Contact Us.