Auto Financing After a Bankruptcy

The new bankruptcy law enacted on October 17, 2005 has made it harder people with bad credit to file bankruptcy. Additionally, many people with bad credit and higher incomes can no longer file for total liquidation through a Chapter 7 bankruptcy, but are forced instead to file a Chapter 13 bankruptcy and repay some of their debt.

The new law however, has had little effect on the ability for people to get a car loan after bankruptcy. Why is it easier to qualify for car loans after bankruptcy when compared to someone with bad credit that hasn't filed for debt relief under the bankruptcy law?

The fact is that most people are considered a low credit risk after the file bankruptcy. Since most or all of the person's debt has been wiped out, people have more disposable income after bankruptcy. Furthermore, most people with bad credit genuinely want to rebuild their credit rating with a car loan after bankruptcy.

The rules are different for people who have filed chapter 7 bankruptcies and people that have filed chapter 13 bankruptcies. Chapter 7 bankruptcies are a total liquidation of your debt whereas chapter 13 bankruptcies require the debtor to repay some of the debt, usually over a three to five year period.

That being said, car loan interest rates are usually lower for people who have completed chapter 13 bankruptcies, but in either case getting car financing after bankruptcy is quite common.

Car Loan Financing Process Overview

The ability to begin the process of obtaining car loans on line has made a noticeable difference in the type of loan options available to today's vehicle buyer. The internet has opened up a large array of financing options for vehicles and almost anything else that is commonly purchased with financing. Vehicle loans are one of the most common financial arrangements in America. They are easy to understand and have very specific rules regarding payment, terms, interest, etc. Loan payments are calculated on the value of the vehicle and the length (usually measured in months) of the financing. Interest and finance charges generally make up the monthly payment. The actual amount of the monthly payment is determined by the number of months that the financing is paid across. Most of the time, loans with a longer loan term will come with a higher interest rate.

When financing a vehicle it is important to consider the value of the car over the length of the loan. If you plan to have the vehicle for a long amount of time you do not have to worry about residual value of the auto after paying it off. However, if you do not expect to keep the vehicle very long you need to consider if you will have to pay additional money when trading in the vehicle due to negative equity (meaning that the vehicle is worth less than you still owe on the loan for it). If the vehicle is worth less than the remaining balance when you go to trade it in, you will be responsible for the difference. People often roll this "leftover" amount into their new loan, essentially making their new car more expensive than it should have been.

Having financing arranged through the dealership is widely considered to be the easiest way to go about getting a new or used car loan. Since it is all handled at the dealer, you will not need to spend time dealing with multiple organizations such as banks or credit unions. After you have been approved and the loan paperwork is finished, your car is right there and you can simply get in it and drive away. Read more about the benefits of dealer financing.

Getting Better Vehicle Loan Interest Rates

Car finance interest percentages are different from lender to lender, and from one situation to the next. You may be able to get the lowest amounts through the lender's financing process. Many new car dealerships work with several lending institutions, and you may be able to get good vehicle interest rates from them.

Lenders or dealerships will sometimes offer promotions that feature lower vehicle loans interest rates. This can be for first time buyers, students, credit union members, etc. Watch for local dealers who promote special vehicle finance interest rates, and check to see if it will work for you and your specific financial/credit situation.

Applying online is often a great way to get good auto finance interest rates. There are many sites that will submit your application to a lender or dealer who can work with you. Examine all of the loan figures, especially if the interest rate seems too good to be true. Look how many months the loan term consists of. See if there is some kind of penalty if you pay your loan off early. Credit unions are often known for having better car loan interest rates.

Lenders such as banks, credit unions, and finance companies all have different rules and formulas that they use to determine interest rates for new and used car dealer financing. For a particular dealership, especially if they have bad credit financing options, a lender will calculate an interest rate based on the buyer's credit score, the vehicle's mileage, the vehicle's age, the vehicle make and model, and possibly several other factors. Because of this, there is no one way to predict or assume what your interest rate will be on a car loan.

Finding a Car Loan For Bad Credit

Are you concerned that you have bad credit but you still need to buy a vehicle or a vehicle so that you can get to work and start rebuilding your credit?

Things that you need to have in hand when aiming to get approved for financing are: A fullt-time job, valid driver's licence, in some cases a list of references (people who are family or non-family that can be contacted to verify that you are who you say you are), a co-applicant if necessary, a bank account, copies of recent utility bill, and a down payment.

Being realistic is important to not being disappointed or wasting your time. Know what you want and know what you are likely to be able to buy based on your income, debt, and down payment. When you go to a dealer with unrealistic expectations and the assumption that you will be approved for any vehicle you want despite bad credit, you are likely to be disappointed and may end up blowing off the entire thing. While you can get approved with any sort of credit situation, your specific vehicle options may be limited. Bad credit lenders have lists of approval guidelines, and will only approve vehicle of certain years, makes, models, and mileages for people who have bad credit.

Search for a dealer who is known to finance vehicles for bad credit. Certain dealers have experience and have relationships with many bad credit lenders and other finance institutions that specialize in bad credit car loans. Additionally, many - if not most - dealers are not equipped to truly help customers with severe credit problems. Despite what their commercials and advertisements might say, a large number of new and used car dealers do not have the proper inventory or lender relationships in place to help most bad credit customers. Trying to get financed at one of these types of dealers will do nothing more than waste a lot of your time and place needless inquiries on your credit report.