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Taking on a new car loan while in bankruptcy Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make smarter financial decisions by offering you interactive financial calculators and tools that provide objective and original content. This allows you to conduct research and analyze information for no cost - so that you can make informed financial decisions. Bankrate has agreements with issuers, including but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this site come from companies that compensate us. This compensation may impact how and when products are featured on this website, for example, for example, the order in which they appear within the listing categories in the event that they are not permitted by law for our mortgage or home equity products, as well as other home loan products. This compensation, however, does affect the information we provide, or the reviews appear on this website. We do not contain the universe of companies or financial offerings that could be available to you. SHARE: Westend61/Getty Images
5 min read Published June 22, 2022
Writer: Jackie Lam Written by Contributing writer Jackie Lam is a contributing writer for Bankrate. Jackie write about automobile loans. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are dedicated to helping readers gain confidence to take control of their finances through providing clear, well-researched information that breaks down otherwise complex issues into digestible chunks. The Bankrate promises
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You have money questions. Bankrate has the answers. Our experts have been helping you manage your finances for more than four years. We continually strive to give our customers the right advice and tools required to make it through life's financial journey. Bankrate adheres to a strict code of conduct , so you can trust that our content is honest and accurate. Our award-winning editors, reporters and editors create honest and accurate information to assist you in making the best financial decisions. The content created by our editorial staff is objective, factual and uninfluenced through our sponsors. We're open regarding how we're capable of bringing high-quality information, competitive rates and useful tools for you , by describing how we earn money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for the promotion of sponsored goods and, services, or when you click on specific links on our site. Therefore, this compensation may impact how, where and when products are listed, except where prohibited by law. We also offer loan products, such as mortgages and home equity, and other home loan products. Other factors, such as our own rules for our website and whether the product is available in the area you reside in or is within your personal credit score can also impact the manner in which products are featured on this site. We strive to offer an array of offers, Bankrate does not include details about each credit or financial products or services. When you make an application for Chapter 13 bankruptcy -- also known as repayment bankruptcy -- your credit score will be affected, and it will stay on your credit profile up to seven years. With Chapter 13 bankruptcy, you sign a repayment plan that has been approved by the court, explains Amy Lins, vice president of enterprise learning at , an agency for credit counseling that is non-profit based within Sugar Land, Texas. "This repayment takes place over a period of 3 to five years, which means that you are not able to take on any new debt," says Lins. "However, the court recognizes that life can change and it might be necessary to purchase an automobile prior to the end of the Chapter 13 repayment plan." It is possible to get an auto loan however, your options will be limited. What is the best way to obtain a car loan when you are in Chapter 13 bankruptcy If you have enough cash to buy the purchase of a vehicle, you could simply purchase a vehicle for cash , without having to go through the court. But, you might need to alter your bankruptcy schedule in order to get it changed, so consult your lawyer prior to making any changes. If you're looking to take out a car loan even though you're on the repayment plan and before you're discharged from bankruptcy, you can probably be able to do it. Here are the four steps you need to do, as explained by Lins. 1. Create a budget that shows that you are able to pay for the cost of your car. You'll need to show that you can take care of your debt repayment, other financial obligations and responsibilities , as well as the car payment. "If the car purchase going to impact other aspects in your plan for repayment, you should work with your lawyer to develop a new proposed payment plan" says Lins. 2. Find an lender that will work with Chapter 13 bankruptcies There are very few car dealers and lenders that will cooperate with people who are in bankruptcy, but there are certainly some who will, according to Lins. "Your bankruptcy attorney may be able provide a list of dealers and lenders that will work with you, and you should inquire with your local bank or credit union." Also, since your credit score is likely to be impacted by bankruptcy, you can expect to pay higher interest rates, fees and terms that are less favorable. It is also necessary to locate an auto dealer that works with you to get the vehicle loaned. Even though your options are slim, do your due diligence and look at rates and terms from various lenders. You should have the offer that includes the purchase price, the monthly payment and interest rate in writing and submitted to the court, according to Lins. "Keep the purchase price at a minimum and then wait until you are able to discharge bankruptcy and repair your credit before purchasing a more expensive vehicle," she says. 3. Make a motion to the court to buy the vehicle. In order to take over the car's debt while still repaying your debt You'll need to file a motion with the court in order to get it accepted. This requires bringing your application and having a solid argument for why you're required to buy a car and why you'll have to get financing for this. Perhaps your last car broke down and the repairs are so substantial that it makes more sense to buy a brand new car. Or you reside in an area in which public transportation isn't readily accessible. This is something that your bankruptcy attorney can assist with. 4. When the purchase is approved by the court, you can then obtain your car loan and then get your car. Make the purchase and begin paying the loan off with your other obligations. How to obtain a car loan following Chapter 13 bankruptcy Once you finish your court-ordered debt repayment and you are discharged, you don't need to undergo the court process to be approved. If you're able to, try to use the car you have until you are at least six months past discharge, explains Lins. Enhance your credit score There are several ways to improve your credit score, such as obtaining and using secured credit cards. The process of obtaining a secured credit card involves the deposit of a small amount that acts as collateral. Your deposit will be used as a credit line for credit cards. "Charging and repaying small amounts over time will help rebuild your credit history in a positive way," says Lins. There are also companies that can report rent and other charges, including cell phone and utilities, and streaming services that can help you create or maintain an punctual payment history, according to Lins. "These services typically have small fees, however certain are completely free," she says. "Using your utility bills and rental payments to create credit history can be a great way to start the process of rebuilding." Check your credit. Besides repairing your credit, you will be able to monitor it. This will allow you to see the progress you are making and what kinds of improvements are possible. Also, monitoring your credit frequently can help you spot errors that could hurt your score later on. You can order free reports from AnnualCreditReport.com or sign up for a free credit monitoring service. A lot of credit cards offer a free monthly look at how your score on credit. Find a car in your budget Making sure to shop for an automobile that is within the range of the budget you're able to comfortably afford will ensure you stay on top of the obligations. This will help rebuild your credit score and help you stay on the right track. Examine your monthly expenses to determine how much of a car loan your budget will allow. As a rule of thumb automobile-related expenses should not exceed 20% of your monthly budget -- which includes the cost of gas maintenance, insurance, and. It is also possible to determine a budget to purchase your car using the information on the internet via websites such as Edmunds and Kelley, which offer used and new prices for cars, and estimates of insurance costs. Consider a down payment. The greater the amount, the less you'll be liable for it in the near future. Review your budget and determine the amount you can afford to stash away every month towards buying a vehicle. Ideally you should save as much as you can but ultimately it comes to your income expenditures, obligations and current obligations. Alternatives to obtaining an auto loan If you're not satisfied with the rates and terms provided for an auto loan or have trouble getting approved altogether look into other options. Shopping for a lower-priced vehicle. Even if your interest rate is high, your total amount of payment and the amount you owe each month will be more affordable. Wait and finance later when your credit is better. When you have rebuilt your credit, you'll likely qualify for a greater swath of car loans with lower interest rates, fees , and better conditions. You can pay cash in full. Saving money and paying cash outright for a car will mean you don't need to seek an auto loan at all, which will save you on interest charges. However, if you're in need of to purchase a car earlier than later, you might need to take out the loan . The bottom line is that getting an auto loan during Chapter 13 bankruptcy is possible. Find an lender who will work on Chapter 13 bankruptcies and create an appropriate budget that permits you to pay off debt as well as pay for an auto loan. It's also crucial to research the market to find the best car for your budget. When you've been discharged of bankruptcy, finance options also are available. But the initial step to take is repair your credit by setting up the habit of paying debt in time. "It's an old saying, however, time does heal any wound, including those in your score," says Lins. Find out more
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Written by the writer who contributes to the project. Jackie Lam is a contributing writer for Bankrate. Jackie write about automobile loans. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain confidence to control their finances with precise, well-studied information that breaks down complicated topics into manageable bites.
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