A car loan or auto loan is a very effective credit facility which basically helps people buy cars, even if they do not have the required financial resources at that time. And, in some instances, availing a car loan post bankruptcy is probably the best chance to improve your current credit score. Before explaining what a car loan after bankruptcy is, let us first understand the two concepts of car loans and bankruptcy.
Car Loans and Bankruptcy
Car loans are a credit facility or rather a type of loan that consumers specifically use to buy cars. Banks and lending organizations loan out a specific amount to a consumer, as a car loan or an auto loan. In maximum cases, the amount of loan is exactly equal to the cost price of the car that the consumer wants to buy.
After the consumer makes an application for the car loan, a quick background check and identity verification is performed, and the loan amount is transferred to the bank account of the buyer. In some cases, the amount is directly paid to the seller.
The best merit of car loans is that the car that is purchased is considered as a collateral, which makes the loan a secured loan. As the loan becomes a secured loan, it means that if the borrower of the loan i.e. the consumer who has taken the loan, is not able to repay the whole amount, the lender has the right to sell off the car to recover the loan. As the car loan is secured with the help of the car itself, the sanctioning process is not very lengthy, and doesn't include a very strict credit history check or require a particular credit score.
A recorded bankruptcy does not have a negative impact on the sanctioning process of a car loan. The time period, after bankruptcy, before you can apply for a car loan differs from case to case and region to region. In some cases, you can apply for the loan immediately after all the creditors' accounts have been closed down. For more specified details, you need to either get in touch with the court of law, where you have filed for bankruptcy, or your lawyer.
Buying a Car after Bankruptcy
During the proceedings of bankruptcy, all the creditors' accounts that had been opened are closed and the creditors are paid on the basis of pro-rata basis. Hence, once the proceedings are complete, all the records of the debts are wiped out by the credit report agency. What remains on the report is a very poor credit rating. Car loans after bankruptcy can be easily availed, as the lender does not assess a person's credit rating, while sanctioning the loan.
The lender can easily provide consumer who has been through bankruptcy, a car loan due to two basic factors. Firstly, the car loan is a secured loan, with the car as the collateral and secondly, the car has an excellent resale value. Due to these conditions, the sanctioning of the loan after bankruptcy becomes extremely easy. However, consider the following suggestions, while going in for a car loan after bankruptcy.
Reviewing the Credit Report
The most important thing that you should be doing is reviewing your credit history and the current credit report. One must ensure that all your accounts have been closed and the income projection has been displayed well enough. Bear in mind that the income projection is exactly what lender of car loans examined before sanctioning the loan.
Installments and Repayments
Even before making a choice, make sure, with the help of calculations, that you would be able to make payments for the installments on time or not.
Improving the Credit Score
Assessing whether one would be able to pay the installments on time or not is very important, because the late payments and timely payments are recorded on the credit report and tend to directly influence the credit score. Timely payment increases the credit score, wheras a late payment decreases the credit score.
Compare and Calculate
Different lenders offer different rates of interest. Many a time, the rate of interest may change, according to the cost of the car or the consumer's income. Hence, before making any final decision, one must certainly consider all possible options.
While taking a car loan after bankruptcy, every timely payment that you make significantly increases your credit score and gets recorded in your credit history, thereby improving your credit standing. The interest rate and other terms and conditions of such loans provided by sellers themselves are always easy to fulfill, and repaying the loan in installments, thus becomes a pretty easy task.
The key to gaining the best advantage from a car loan, post bankruptcy, is to choose an appropriate loan and also pay the installments on time. So, avail a car loan after you have filed for bankruptcy and improve your credit score.