After bankruptcy, a person might think the opportunity to purchase a car is forever gone. However, it is actually possible to buy a car relatively soon after bankruptcy with the right preparation.
Build Some Credit
The first step after bankruptcy is to begin building credit. This can mean acquiring a credit card, taking out a cosigned loan, or using collateral to take out a loan. Even simply paying bills on time can begin the process of reestablishing credit.
Whatever way an individual chooses, having a new and positive credit history can signal to a car dealer that the individual is ready to take on new responsibilities and honor his or her debts. Just six months of establishing new credit and paying bills on time can raise an individual’s credit score by a great deal. Read more about securing car loans after bankruptcy.
Get Files in Order
When buying a car after bankruptcy, you may need more paperwork than the average customer. In addition to their credit report, they may benefit from presenting a discharge letter from the bankruptcy court. This letter will confirm that the individual is free of his or her previous debts, which may allow the individual to qualify for post-bankruptcy loans. Other files that might be requested are proof of insurance, income, and residence, a valid driver’s license, and references from previous creditors.
Reinforcements
A cosigner can also help open doors at the car dealership; the more confident the dealer feels that payments can be made, the more likely he or she is to approve the purchase. A cosigner can provide that confidence by giving an extra layer of protection and assurance for the dealer. If the original purchaser fails to make payments, the burden of payment falls to the cosigner.
Research
Whenever anyone buys a new car, they should go into the situation well-prepared and knowledgeable about the situation. First, setting a budget and knowing what you can actually afford is incredibly important; it would not do to go into debt again so soon after bankruptcy by purchasing a car beyond your ability to pay. Next, knowing what cars are available in the area and knowing what they are actually worth is invaluable to a car-shopping experience. Quotes are available online and should be compared against Kelly Blue Book values to ensure the best deal possible.
Save Up
Having a deposit of at least $1000 or 10% of the car’s value can make any transaction easier. This will help lower monthly payments and make it easier to get accepted for a loan. Without any money down or at least another vehicle to trade in, it’s highly unlikely a person with a bad credit history will qualify for a good loan and, if approved at all, will pay exceedingly high monthly interest rates.
Buying a car after bankruptcy can be a hassle, but that doesn’t mean it’s impossible. In fact, buying a car can provide another line of credit that can reestablish creditworthiness. Any big purchase should be taken seriously and carefully, but with preparation, it can be a successful endeavor.