Getting a Car Loan After Filing for Bankruptcy: What You Need to Know

If you’ve had to liquidate assets as part of your bankruptcy proceedings, you might be struggling to get around without a car. But don’t worry; there is good news here! Even if you have filed for bankruptcy, you can still get financing for a car. In this blog post, we’ll walk you through the financing process and discuss the steps you can take to rebuild your credit for a better future. 

What Is Bankruptcy?

Bankruptcy is a legal process that is initiated when you can’t repay your outstanding debts or obligations. Bankruptcy can affect both individuals and businesses. While it can be stressful and take an emotional toll, it allows you to deal with your debt and start fresh. 

What Kind of Car Loan Can I Get After Bankruptcy?

If you’ve filed for bankruptcy and you’re having difficulty getting a loan from a traditional bank, it’s important to know that there are other options available. You can get a car loan through an alternative lender that offers a special type of loan called a bad credit car loan. These loans are perfect for people with bad credit, no credit, or limited credit, including people who have claimed bankruptcy, newcomers to Canada, and students. 

What Is the Interest Rate of Bad Credit Car Loans? 

When you get a car loan, you are charged interest on the loan amount that you borrow. While traditional lenders such as banks and credit unions tend to offer lower rates of interest, these loans are only available to people who can prove a stable income, have a good credit score, and show responsible use of varied sources of credit. 

Individuals who have filed for bankruptcy or have a history of bad credit are viewed as risky borrowers. As the lender is unsure whether the loan will be repaid, they tend to charge higher borrowing fees, with some lenders charging over 40% on interest. While the costs of borrowing may be high at first, you’re not necessarily locked into paying these rates for the duration of the loan term, as you may be able to refinance after some time. 

Improving Your Credit Score for a Car Loan

No matter what your situation looks like—whether you’ve filed for bankruptcy or simply have little or no credit history—there are steps you can take to improve your credit so you improve your chances of getting a car loan with favourable loan terms. 

1. Get a Secured Credit Card

With a secured credit card, you must provide a cash deposit to your lender to insure any purchases made with the card. However, every payment you make to pay down your balance is reported to the credit bureau and builds up your credit. 

2. Don’t Max Out Your Credit Card

While it’s great to have access to credit, the last thing you should do is go crazy with your spending. Don’t max out your credit card every month! This shows a dependency on credit and an inability to manage your credit responsibly; instead, use no more than 30% of your credit for each statement period and pay your card balance down on time.  

3. Put Bills in Your Name

If you are paying bills that are reported to the credit bureau, they won’t help you if they’re not listed in your name. This is often the case with students who still have cell phone accounts under a parent’s name or with spouses who have most of their accounts under the other spouse's name. 

4. Pay Your Bills On Time

Not paying your bills on time is one of the biggest factors that will affect your credit score. For this reason, it’s essential to be proactive and address any payment issues promptly before you miss a payment. If you're having problems, talk to the lender and explain the problems you’re having. Most lenders don’t want to repossess your car or other items but will work with you to figure out an alternate payment plan. 

5. Talk to a Financial Advisor

When you are navigating the world of credit, the best thing to do is to connect with an advisor who understands the best way to build credit. At Insta Auto Solutions, we specialize in getting credit for our customers so they can buy a car and improve their credit. We take the time to review your credit report and discuss ways to increase your sources of credit so you can build your credit for a better future. 

5 Tips for Buying a Used Car

1. Buy From a Dealership

Start by looking for cheap used cars for sale at dealerships. While you can buy from a private seller, reputable used car dealerships often do extensive safety inspections to ensure the car is safe and in good working order. They also offer warranties, so if you experience problems in the first few days after buying your car, or you simply don’t like it, you can return it and get another one.   

2. Choose a Less Expensive Car

If you are buying a car after bankruptcy, you may be struggling to manage your costs. While a car is a necessity, it’s not essential for your car to have all the bells and whistles, so choose a simple car that you can afford. This makes good financial sense, as the more you borrow, the more interest you have to pay, so keep your borrowing costs low so you can comfortably make your monthly payments. 

3. Offer a Downpayment on Your Car

Offering a downpayment for a car is a great way to improve your standing with the lender and lower your borrowing costs. The greater the downpayment, the less you’ll have to borrow, so the less interest you have to pay. 

4. Get a Cosigner on Your Loan

If you are concerned about the high level of interest you may have to pay on your loan, one option is to get a cosigner on your loan who has a good or excellent credit standing. Even though your credit score may be low, the lender will view your cosigner favourably and offer better loan terms that you will benefit from.

5. Go to a Dealership That Specializes in Credit Applications

Every time you make a loan application, the lender does a credit check, and you lose a few points off your credit score. While it's perfectly fine to shop for a used car, you definitely don’t want to shop around for credit as for every query that’s made, it becomes much more difficult to get a loan. For this reason, it’s important to choose a dealership with a finance department that knows what they are doing. Also, select a dealership that works with several lenders so you can get the best loan terms when securing your loan. 

How Can I Lower My Bad Credit Car Loan Interest Rate? 

Bad credit car loans are a great way to purchase a car and build your credit. Even if you’re paying very high interest rates on your loan, be patient, as there are steps you can take to lower your interest rates and monthly costs. 

Step #1 Make your car loan payments in full and on time, as this reflects well on your credit report. It may take a few months to see the results, but your score will definitely improve. 

Step #2 While it’s essential to make your car loan payments, you must also pay your other bills on time so you don’t lose any points on your credit score. Cell phone payments, other loan payments, and credit card payments are all reported to the credit bureaus, so missed or late payments will reflect negatively on your report. 

Step # 3 After several months of consecutive loan repayments, you should see your credit rating improve. 

Step #4 Once your credit score improves (after at least a year), refinance your car to take advantage of lower interest rates. Before taking any steps to refinance your car, we recommend speaking to one of our advisors to ensure that you’ll benefit from refinancing; some lenders impose penalties when you pay out a loan, so it’s best to check if the switch makes financial sense. 

Get a Bad Credit Car Loan in Edmonton 

At Insta Auto Solutions, we help people who have filed for bankruptcy or are struggling with bad credit. If you need a car loan and would like to talk with a financial advisor who can help you get back on track, connect with us today! We have vehicles, car loans, and other strategies to help you move from bankruptcy or insolvency to confident cash flow.