Getting a car loan can often be a nerve-wracking process. There’s a lot to think about and quite a few documents that you’ll need to produce. If you’ve been declared bankrupt, you may be really worried about whether you can get a car loan – don’t panic.
Depending on your individual circumstances, it is possible to get a car loan if you have been declared bankrupt. Many bad credit lenders understand that there are many reasons for difficult financial situations and are open to giving people a second chance.
Bankruptcy in Australia
Understanding bankruptcy and your position within it is important when it comes to getting a car loan. You need to understand that bankruptcy is a legal process that you have entered into after declaring that you are not able to pay your debts.
For many, bankruptcy comes as a relief – allowing you to be released from most debts and to make a fresh start.
Bankruptcy generally lasts for 3 years and 1 day. After this, you will be ‘discharged’ from bankruptcy.
Applying for a car loan whilst you’re bankrupt
It’s very unlikely that you’ll be able to apply for a car whilst you are declared bankrupt. The most likely option is that you’ll have to wait until you are discharged from bankruptcy before you start your car loan application.
This can be frustrating as many people need a car to get back on their feet during bankruptcy. If this is the case, you could consider borrowing a car from a friend or family member or buying a cheap vehicle outright.
Whatever you decide, make sure you don’t stretch yourself financially. Remember that cars have running and maintenance costs that often occur unexpectedly so be prepared.
Applying for a car loan after bankruptcy
Almost all lenders will carry out a background check on you when you apply for a car loan which will involve looking at your credit history and your credit score.
A history of bankruptcy will affect your credit score so you need to be prepared that many bigger lenders and banks will reject you outright if you apply for a car loan.
Luckily, there are many bad credit lending specialists who are open to people who have been declared bankrupt in the past.
They understand that there are many different reasons for bankruptcy and that you may be back on your feet and able to take on a car loan without any problems.
How to find the right lender when applying for a car loan after bankruptcy
Find a lender who has been recommended by others who have been discharged from bankruptcy or who have a good reputation for working with people with bad credit.
Unfortunately, there are bad credit lenders who will take advantage of your need for a car loan and your poor credit rating and you should be extremely wary of entering into an agreement with them.
If you are offered a car loan after bankruptcy, the chances are the interest rates will be higher than with a standard car loan.
This is normal as you are considered a higher risk to the lender who may be concerned about your defaulting on the car loan. Be wary of extremely high-interest rates though as you don’t want the lender to be taking advantage of you.
Speak to your lender about whether a larger deposit might help you get a better rate of interest on your car loan after bankruptcy.
If you have a close friend or family member who is able to help you with a deposit, or if you’re able to save up some money yourself, this will reduce the total amount that you’ll need to borrow.
Things to remember when getting a car loan after bankruptcy
Be organized – you need to make sure that you pay your loan repayments back on time and in full on the right date each month.
You can’t afford to be late with repayments or default on your loan as this could really affect your potential to borrow money in the future.
Budget carefully – don’t stretch yourself financially. It can be really tempting to want to get back on the road and borrow money for a car loan as soon as possible after bankruptcy but there’s no point in getting a loan that you can’t repay and that could see you under serious financial strain.
Pay the money back – you should see your car loan after a bankruptcy as a second chance and an opportunity to make a fresh start.
Always ensure that you pay back what you owe – whether it’s to your lender, or to friends or family. You want to start the journey back to financial stability as you mean to go on.