You may have filed for bankruptcy and now need a car loan. Or maybe you are about to be released from bankruptcy and you are now ready to upgrade! If you are in either scenario, working with a subprime lender for your next car loan may be your next step in increasing your chances of getting approved.
Bankruptcy vehicle financing
Traditional auto lenders – credit unions, banks, captive lenders – may not be able to help you with financing your vehicle if you are bankrupt because bankruptcy can cause serious damage to your credit reports.
Even if you successfully complete your bankruptcy, the damage caused by the filing can last for up to ten years, making it more difficult to meet the credit score requirements of traditional lenders. However, there are auto lenders equipped to help bankrupt borrowers: the subprime lenders.
Subprime lenders who are registered with special financing dealers often work with bankrupt borrowers. Your credit score is only one piece of the auto loan eligibility puzzle for a subprime lender. If you can meet their terms, you might have a chance to get a car loan.
Car loan terms in bankruptcy
However, not all bankrupt borrowers can get a subprime car loan. You need to prove that you have the income, stability, and that you will likely need to prepare a down payment to get approved for a car loan.
In general, here are the common auto loan requirements for bankruptcy from subprime lenders:
- Returned – Have a minimum monthly income of approximately $ 1,500 to $ 2,500, before taxes. Proven with computer generated check stubs from the last 30 days, or two to three years of tax returns if you are a 1099 worker.
- Address – Prove your residence with a recent bank statement or recent utility bill in your name. Most subprime lenders require that you have lived at the same address for about six months to a year.
- Telephone – Provide proof of a working telephone, whether cellular or landline. Cannot be a prepaid phone. A recent phone bill in your name may do the trick.
- Driving license – You must have a valid driver’s license. This means that it cannot be revoked, expired or suspended.
- Advance payment – Subprime lenders generally require a down payment of at least $ 1,000 or 10% of the vehicle’s selling price. Can be satisfied with cash and / or trade-in equity.
- Personal references – Have a list of five to eight personal references with their names, addresses and contact details. Referrals can be family, coworkers, or friends, but can’t be someone who shares your current address.
- Release documents – If your bankruptcy was recently acquitted and it does not show up as such on your credit reports, you may need to bring your discharge documents to the dealership to prove that you are authorized for auto financing.
- Court approval – If you are in the middle of bankruptcy and need a car loan, you need court approval to get into more debt. This means picking a vehicle from a dealership and getting a sample order from the buyer, and handing it over to your trustee so they can formally apply to the court for permission to incur additional debt.
Is my chapter on bankruptcy important?
Your chapter on bankruptcy can be important to a subprime lender if you apply for a car loan before it’s released.
Typically, Chapter 13 borrowers are more likely to get an auto loan approval because it is longer than Chapter 7. Chapter 13 is also bankruptcy repayment where your court-appointed trustee draws up a repayment plan to follow. If you are approved for a car loan during your bankruptcy, your trustee must agree that you can make the loan repayments while sticking to your repayment plan.
Chapter 7 is liquidation bankruptcy where your creditors are paid by the proceeds from the liquidation or sale of your non-exempt assets. Lenders may be concerned that your auto loan may be canceled in Chapter 7, so they tend to avoid these situations until the bankruptcy is cleared, which usually only takes six months.
If your Chapter 13 or Chapter 7 is now released, the chances of approval are usually higher if you can meet the lender’s requirements.
Ready to find an auto loan in bankruptcy?
You may need to do some legwork to find a subprime lender who can help bankrupt borrowers – or you can let us find a special financing dealership for you. Free.
Here has Auto Express Credit, we have created a nationwide network of dealers who are registered with subprime lenders. Skip the search for a dealership by filling out our free auto loan application form. We will look for a dealer in your area without obligation. Start now!